TCI Lobbies J-Power Investors, Threatens Cross-Shareholders

May 27 2008 | 9:23am ET

The Children’s Investment Fund is opening new fronts in its increasingly acrimonious battle with Japan’s largest electric utility.

The London activist hedge fund said it has won the backing of shareholders owning 8% of Electric Power Development Co., better known as J-Power, and fired a few warning shots in the direction of several cross-shareholders.

TCI said it has bought stakes in both Mizuho, Japan’s second-largest bank, and Kajima, the country’s largest general contractor, both of which are shareholders of J-Power. The hedge fund—which bought stakes of less than 5% in each—said it will seek to hold the two companies accountable for how they vote their shares at J-Power’s annual meeting.

The hedge fund has been battling for what it calls improved corporate governance at J-Power, including strict limits on the controversial practice of cross-shareholding, in which companies buy large stakes in each other. TCI argues that cross-shareholding eats up returns that should be going to investors.

TCI said it has sent letters to Mizuho and Kajima, as well as Nippon Life Insurance Co., seeking meetings about their stance on TCI’s proposed changes at J-Power. None have responded.

The hedge fund, which owns 9.9% of J-Power and recently saw the Japanese government block its effort to double that stake, won a warmer reception from J-Power’s retail investors. TCI met yesterday in Tokyo with about 20 individual investors owning a total of 8% of J-Power, and say they won their support.

TCI’s proposed proxies for the meeting include seven items involving cross-shareholdings, dividends, share buy-backs and outside directors. J-Power has rejected all of TCI’s demands thus far.

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