Japan’s second-largest listed Eikaiwa by market cap. (Gaba’s number 1), Nova, has been in the news lately on a number of fronts. First up is the tragic murder of one of its teachers last month, where the police let the suspect escape and have failed to find. Then there is the ongoing legal battles with customers seeking fair refunds for unused services. Finally there is the sale of some prime property in the Ginza district earlier this week.

The murder can hardly be blamed on the company. It is certainly a tragedy nonetheless. The suspect appears to be a loner-type who stalked and later contacted the teacher under the pretext of wanting to be a private student. The teacher had only been in Japan for a few months so would have been less prepared to deal with the local sneak-freaks. Sad story.

The ongoing fighting of refunds in courts (including appealing decisions to the highest courts), and consistently losing, is clearly a company problem. The latest case saw the Supreme Court deciding that Nova was in the wrong and the customer should receive a full-refund for the tuition fees not used by the student. Basicly Nova sells lots of points to a customer, which can be used to take classes at the company. The more you buy, the cheaper it is per point. If a customer does not use all the points and seeks a refund, the company calculates how many points were used, what rate those points would cost (higher cost per point for smaller packages) and pays the remainder to the customer. This would not be a problem if a customer was *fully* aware of how this works, but as the customer only learns when seeking a refund, it is a problem. There are estimated to be at least eight lawsuits against the companyhere’s another one.

There has been a growing number of consumer complaints against the company in recent years, leading to a raid earlier this year, suggesting this is a systemic problem with the company (and resulted in raids in Tokyo earlier this year).

While its strategy of fighting all the way to the Supreme Court may scare off a lot of refund seekers (the court costs and lost work time for the plaintiff would be much higher than the lost refund), it must surely scare away potential customers. It should be interesting to see if Nova continues its current policies regarding refunds.

The latest revelation of the land sale came in the middle of this week, when Nova sold a property in the Ginza district (somewhere around here), to a property developer. The amount was not disclosed. A couple of posts on bulletin boards have suggested 2 billion yen or more. The reason behind the sale is unclear, but for a long-time Nova watcher like me, it is quite interesting (a specific investment strategy or cash needs?).

But the big day for Nova is about one month away when the 2006/07 FY earnings are released. In 2005/06 Nova lost 3 billion yen. This year the company says it will make a profit of several hundred million yen. 3Q results suggest that will be difficult, and the raids, and court cases will no doubt have had an impact… But until then we must all wait.

Remember… This is the *slightly* drunken ponderings of a *slightly* insane guy and should not be considered investment advice in any way, shape or form.

For those who like bad news for eikaiwa…
:: 7 Nova teachers busted for drug possession
:: Lado Bankrup

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