Private equity giant Cerberus patiently waits for payoff from Japanese rail giant

Cerberus Capital Management LP, owner of 32.4 percent of Seibu Holdings Inc., is willing to wait as long as three years for the relisting of the Japanese rail and hotel operator.

The private-equity firm wants to increase its stake and appoint three new directors before selling shares to the public in two or three years, said Masakazu Iwakura, a lawyer for Nishimura & Asahi who is advising the New York-based company. Seibu said it is preparing for a listing as soon as possible.

Cerberus, which oversees more than $20 billion, is offering to raise its stake to as much as 36.4 percent after leading a bailout of the company with Nikko Principal Investments Japan Ltd. in 2005. A third-party panel set up by Seibu is scheduled to make a decision on the listing today.

“Cerberus wants to improve corporate value through the addition of the new board members it is proposing,” Iwakura said. “It may take two to three years.”

The Tokorozawa city, Japan-based rail operator had been delisted from the Tokyo stock exchange in 2004 after misstating stakes held by shareholders, breaking exchange rules.

“We are putting priority on preparing ourselves for a listing as soon as possible,” Shuhei Akasaka, a spokesman for Seibu, said today.

Five banks

The rail operator is predicting net income will more than double to as much as 19.7 billion yen ($209 million) in the year ending this month, compared with 8.4 billion yen last fiscal year. It last year hired five banks for a proposed initial public offering.

Cerberus is proposing Hirofumi Gomi, a former commissioner of Japan’s Financial Services Agency; Masaharu Ikuta, former president of Japan Post, and Yuji Shirakawa, former chairman of Citigroup Global Markets Japan, to join Seibu’s board of directors.

Cerberus plans to raise voting rights in Seibu to as much as 36.4 percent from 32.4 percent through an offer to buy outstanding shares at 1,400 yen each, it said earlier this month.

“We’ve been friendly in our approach to Seibu, that’s Cerberus’s basic policy,” said Iwakura. “Whatever they said we’ve been cooperative.”

Seibu was the seventh-largest railway operator in the Tokyo area by ticket sales, according to figures from East Japan Railway Co., the nation’s largest rail operator. It had 93.7 billion yen of ticket sales in the fiscal year ended March 2011, according to JR East. The company’s operations also include hotels, golf resorts and buses.

Seibu was previously run by Yoshiaki Tsutsumi. He amassed a $16 billion personal fortune while at its helm, making him the world’s richest man in 1990, according to Forbes magazine.

Editors: Vipin V. Nair, Suresh Seshadri. To contact the reporters on this story: Chris Cooper in Tokyo at [email protected]; Kiyotaka Matsuda in Tokyo at [email protected]. To contact the editor responsible for this story: Anand Krishnamoorthy at [email protected].