Railroad, real estate and baseball

As the battle for the Seibu Railway Company heats up, the company’s diverse assets are coming into play, including 81 hotels, 52 golf courses, 26 ski resorts and a baseball team. By Aaron Lovell.

It looked like smooth sailing for Cerberus Capital Management and Nikko Principal Investment, the US-Japanese team looking to acquire a $1.4 billion (€1.2 billion) stake in Saitama, Japan-based Seibu Railway Company. But then earlier this week, Seiji and Yuji Tsutsumi, brothers of ousted chairman Yoshiaki Tsutsumi, reportedly put up a $4.8 billion offer for 100 percent control of the company.

The latter Tsutsumi was ousted last year following allegations that he misrepresented the company’s ownership structure. The scandal resulted in Seibu being de-listed from the Tokyo Stock Exchange, a reform commission being set up and a plan implemented to separate Seibu’s leisure businesses from its railway businesses. Seibu also made it known that it was looking for a large group of stakeholders and is creating a holding company for the new investors.

Like many Japanese conglomerates, Seibu is a diverse collection of seemingly unrelated business lines and real estate assets. Regardless of who acquires Seibu, it will certainly be one of the year’s biggest Japanese real estate plays – and it comes at a time of renewed interest in the market by opportunistic real estate investors. Looking closer at the Seibu portfolio, the appeal of the company becomes increasingly evident.

Bathers at Toshimaen park, a Seibu property in suburban Tokyo

Real estate: The group’s real estate portfolio is often cited in news reports about the deal – and for good reason. Seibu has a diversified portfolio of real estate holdings and operating business. It reportedly controls 169 properties, including 81 hotels, 52 golf courses and 36 ski resorts, as well as the storied Toshimaen theme park and onsen in suburban Tokyo. Many of the properties are unprofitable, leading to the possibility of a number of distressed opportunities hitting the market place.

As Seibu mulls which assets to liquidate, numerous plans have been put forth over the past year, suggesting that the company should sell as many as 85 properties. In April, it opened its flagship Tokyo Prince Hotel Park Tower, while announcing in September the intention to sell the Yokohama Prince and Makuhari Prince hotels. It also reportedly plans to sell a ski resort in Ojiya, Niigata prefecture, which was damaged in the Niigata-Chuetsu earthquake last year.  

Sports team: Seibu also owns the Seibu Lions professional baseball team. While the management reform panel has said it will further analyze various options for the club, including a possible sale, Seibu President Takashi Goto told a Japanese news service in September that the Lions were “the group’s symbol” and would be an important part of the company’s turnaround efforts. Goto pointed to the fact that ticket and merchandise sales were up 30 percent over the previous year for the 12 months ending July 2005.   

Transportation: The firm also owns a passenger and railroad business lines, as well as limo and bus services. Within its railroad unit is a large commuter system serving Tokyo. The railroad business reportedly comprises around 30 percent of Seibu sales and 50 percent of its profits.  
Of course, while it owns an impressive collection of assets, Seibu remains a distressed company in need of a turnaround. For the April to June quarter of this year, it posted a net loss of ¥31.6 billion ($270 million; €226 million), largely blamed on the losses incurred with the opening of Park Tower hotel in Tokyo.

Regardless of its new owner – and regardless of how many properties it will eventually shed – Seibu will no doubt remain one of the biggest distressed stories this year.