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Meet Japonica Partners: The Mysterious Bidder for Greek Bonds

3:43 pm
Jun 3, 2013

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By Charles ForelleEuropean bond markets were perplexed Monday by an unusual tender offer: An investment firm in Rhode Island is offering to buy up to €2.9 billion in Greek government bonds.
Just as unusual: The putative buyer, Japonica Partners.
Japonica was founded in 1988. Its chief, Paul B. Kazarian, fought rough-and-tumble takeover battles at Allegheny International Inc., which made toasters and blenders, and Borden Inc., maker of milk and Elmer’s glue. (It won Allegheny but lost Borden to KKR KKR -2.50%.) In 1999, Kazarian agitated as an activist shareholder of pen maker A.T. Cross.
Then, he got much quieter, only to emerge Monday as a bidder for Greek bonds — a volatile and risky corner of the European market.
A spokesman for Japonica, Xander Heijnen, said Kazarian wouldn’t be available for an interview. The phone at Japonica’s Providence, R.I. offices rang directly to voicemail. No one returned a message. Japonica’s Web site offers scant information about the firm or Kazarian, other than to detail his philanthropic interests and list venues where Kazarian has delivered speeches.
But a perusal through The Wall Street Journal’s archive paints a picture of a corporate raider of an old-school mold, and a whiz-kid investor whose smarts came coupled with a temper.
In a 1989 article about Japonica’s hostile bid for CNW Corp., a railroad holding company, Japonica is described as a “mystery New York investment group.” Kazarian, then 33, was dubbed part of a “brassy new generation of corporate raiders, called ‘kid raiders’ or ‘brat packs.’” On its Web site, Japonica said CNW was “suffering from a loss of passion for innovation and performance.” Blackstone eventually took CNW private, but Kazarian “made a bundle” for him and his partners, according to a later article.
The next year, Japonica ended up on top in a bruising fight for Allegheny International, whose major brands included Sunbeam toasters and Oster blenders. Kazarian became chairman. The company became Sunbeam-Oster Co. It turned into a lucrative deal. But things got rocky. In 1993, Kazarian was ousted from Sunbeam in an internal revolt. A Page One story detailed the turmoil.

Top executives and board members of the Providence, R.I., company tell a story of a man whose mastery as a crisis manager turned vicious as Sunbeam’s success diminished the need for his furious management style. Mr. Kazarian’s main management tactic, executives claim, was to create crisis. Top managers, speaking not for attribution, say they were pitted against one another, publicly hazed, humiliated and even physically intimidated.

In the article, Kazarian said he received no complaints about his management style before his ouster. His style appeared to be colorful:

Thus, there was tension with Mr. Kazarian, whose 1991 compensation was $1.84 million (10 times that of either of his Japonica partners) and who had become frustrated at his loss of control. In one incident, he took a BB gun — a sample the company was examining as a possible product — and shot it at the vacant chairs of executives, shouting “Die! Die!” according to a witness. Mr. Kazarian says he shot the BBs at targets in the office to test the gun, but doesn’t recall where he put the targets. He adds that no one was in the office at the time, and denies saying, “Die! Die!”

Kazarian’s firing spawned a furious legal fight with Sunbeam investors and some of Kazarian’s former colleagues. He won a $160 million settlement. He took a run at Borden the next year, but KKR ultimately won out. A 1994 Journal article said it wasn’t clear where Kazarian would get the $1.27 billion needed for the Borden bid.

A major weakness in his approach at this stage is that he hasn’t given details of how he could finance such a purchase. Mr. Kazarian’s Providence, R.I., Japonica Partners has about $180 million in gains from Sunbeam and other investments.
But he should be able to gain the ear of some major Borden shareholders, who have complained openly about the terms of the KKR offer. Mr. Kazarian noted in his letter that he has assembled financing for past takeover bids, including Sunbeam.

It also isn’t clear today precisely how Kazarian would finance the purchase of Greek bonds. Japonica has offered to buy as much as €2.9 billion of bonds for a minimum price of 45 cents on the euro. That means Japonica would need at least €1.31 billion to acquire all it wants. The procedure outlined in Japonica’s Monday press release doesn’t oblige Japonica to buy all €2.9 billion, and existing bondholders are free to offer to sell at prices higher than 45 cents. Japonica can choose whether to accept them.
A Japonica spokesman said in written response to questions that Japonica had made “several billion-dollar-plus investments” and that they’ve “performed extraordinarily well.” The response said Japonica’s “profits are the source of its capital.”
Greek government bonds have been a stellar investment over the past year. In March 2012, Greece defaulted on its huge debt load and exchanged nearly all of its outstanding bonds for new ones. They performed poorly in the months after the default, but a year ago most Greek bonds stood at below 15 cents on the euro. Today, depending on maturity, they trade at between about 45 and 60 cents.
The benchmark 10-year bond closed Monday at just over 60 cents, equivalent to a yield of 9.25%. That was unchanged from Friday. Longer-dated bonds, which have lower prices that are closer to Japonica’s 45-cent minimum bid, were better performers, but there were no jarring moves.
– Katie Martin contributed to this post.

Meet Japonica Partners: The Mysterious Bidder for Greek Bonds - MoneyBeat - WSJ