Seibu Railway Looks to Cerberus to Turn Group Around

By Kyodo News International, Tokyo

Oct. 18–TOKYO — Seibu Railway Co. said Tuesday it has chosen U.S. investment fund Cerberus Group and Nikko Principal Investments Japan Ltd. as the main providers of fresh capital for Kokudo Corp., the core firm of the Seibu group.

While Kokudo plans to issue new shares worth up to 160 billion yen during the current fiscal year, a large portion of them will be allotted to Cerberus and Nikko Principal, the railway operator said.

Ratios of allotment have yet to be decided, it added.

The Seibu Railway group will first strengthen Kokudo’s capital base of 104 million yen in a bid to weaken the founding family’s influence over the group, including that of its former Chairman Yoshiaki Tsutsumi, the business tycoon who was arrested in March on suspicion of being involved in systematic falsification of financial statements, analysts said.

The Seibu Railway group is restructuring unprofitable operations as part of the business realignment that has become necessary as a result of the scandal.

By next March, therefore, it will establish a holding company which will own railroad operations stemming from Seibu Railway and leisure and hotel operations from Kokudo and Prince Hotels Co.

Cerberus and Nikko Principal are expected to eventually acquire stakes in the holding company.

But as the Seibu Railway group wants to avoid coming under Cerberus’s management control, it is expected to curb the U.S. fund’s stake to less than 33.3 percent, the analysts said.

To partly finance the coming equity linked financing, the group is likely to sell Seibu Railway shares held by Seibu Construction Co. and other group companies.

Cerberus has undertaken investments for the corporate rehabilitation of Aozora Bank and Kokusai Kogyo Co., a bus, taxi and hotel operator.

The investment fund has hotel chains under its wing and is expected to provide know-how to help Seibu’s hotel management, a field regarded by analysts as key to revamping the scandal-tainted group.

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