By Sam Nussey and Anton Bridge
TOKYO, April 21 (Reuters) – Activist investors are planning to invest in Japan over the long-term, emboldened by their recent successes in a market where they once got a frosty reception.
U.S.-based Elliott Investment Management scored a milestone win against Toyota last month through vocal opposition before striking a deal, signalling how investors are adapting their strategies to tap opportunities being thrown up as the government and regulators push companies to reform.
The growing role of activists is in contrast to two decades ago when pioneering efforts by Warren Lichtenstein’s Steel Partners to acquire Bull-Dog Sauce were blocked and the hedge fund dubbed an “abusive acquirer” by a Japanese court.
“Activism has moderated how it conducts itself,” said Jeremy White, partner at law firm Morrison Foerster in Tokyo. “And the corporates have moderated in large part because of corporate governance reforms, with more independent directors, and an ethos of more accountability to shareholders.”
The surging activist interest promises to keep companies under pressure to change and underscores how Japan continues to attract foreign capital despite growing geopolitical uncertainties.
BUILDING ITS JAPAN FRANCHISE
Elliott is planning more activist activity in Japan, two sources familiar with the matter said. In recent weeks it has disclosed stakes in air-conditioner maker Daikin and shipper Mitsui OSK Lines.
The hedge fund agreed to tender its shares in Toyota Industries for a lower price than it said the forklift maker was worth but believes the agreed price is a good deal for shareholders, the sources said.
If Elliott left any money on the table, it will make more over the next decade by having done so, said one of the sources, as it looks to build its Japan franchise.
Elliott invested in SoftBank, with the company later buying back shares. It also targeted Toshiba, with then-portfolio manager Nabeel Bhanji securing a board seat.
“At Toshiba, they got someone on the board without putting things into the public domain. Now in Japan they’re a bit louder, putting out press releases and presentations,” said a shareholder adviser.
Elliott hired Aaron Tai from Cornwall Capital in 2023 to spearhead investments in Japan, with the San Francisco-based portfolio manager reporting to founder Paul Singer’s son Gordon.
Paul Singer visited Japan last month to attend a conference, the source said, reflecting Elliott’s heightened interest in Japan.
Given Elliott’s heft, international investors including long-only and hedge funds are willing to follow them and join their battles, said a hedge fund manager who invests in Japan.
Activists usually target smaller companies in Japan which require less capital, said Travis Lundy, an analyst who publishes on Smartkarma.
“The distinguishing factor for Elliott is size – it has no business going after $300 million companies, because it’s not going to move the needle,” he said.
‘DECADES OF ACTIVISM AHEAD’ There were a record number of activist campaigns in Japan last year, according to brokerage Jefferies.
The government’s push for corporate reform has seen companies move to unwind cross-shareholdings, sell non-core assets and buy back shares.
The corporate governance code was first introduced in 2015, with revisions being made this year, and the Tokyo bourse has stepped up pressure on companies to improve capital efficiency. “There remains an enormous amount of momentum and we’re coming to an inflection point where the upside of that is even bigger,” said Seth Fischer, founder of activist fund Oasis Management.
There are fundamental factors too supporting the growth of activist investing in Japan.
More than half of listed Japanese firms are family-controlled in some form with their interests frequently diverging from those of minority shareholders, said Toby Rodes, co-founder of Kaname Capital. That structure has led to underused balance sheets, stagnant wages and poor shareholder returns, he said. “Japan will have decades of activism ahead,” he said.
Some observers warned about the risks of overemphasis on shareholder returns.
“The danger is the arrival of short-termism and financialisation where everything is about short-term profit,” said Ulrike Schaede, professor of Japanese business at the University of California San Diego.
Others saw activist activity becoming entrenched in Japan.
“Provided that they learn from each other and that they take a less confrontational and more Japan-attuned approach, I imagine that they will continue to be successful,” said White of Morrison Foerster.
(Reporting by Sam Nussey and Anton Bridge; Additional reporting by Miho Uranaka, Summer Zhen, Kane Wu and David Dolan; Editing by Muralikumar Anantharaman)
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