Fanuc Corp., one of Japan’s most reclusive companies, has spent decades building a wall of secrecy around its ultra-profitable industrial-robotics business.
Outsiders are rarely allowed at its complex in Yamanashi Prefecture on the slopes of Mount Fuji, where an army of yellow robots work 24/7 making more robots in windowless yellow factories.
Business is often done by fax to keep computer viruses out and technology in.
Email is mostly banned.
There’s no investor relations department and no conference calls with analysts.
The founding Inaba family has the $46 billion company under a tight grip.
This is the latest target of Daniel Loeb, the activist investor and founder of New York-based hedge fund Third Point LLC.
Loeb earlier waged a high-profile campaign in Japan against Sony Corp., which ended in October with mixed results. Last week, Loeb disclosed in a letter to shareholders that he also bought a stake in Fanuc and was agitating for change.
“This company is so incredibly innovative and forward-looking in terms of its operational culture,” Loeb, 53, said Thursday in a telephone interview. “From a capital allocation standpoint, not so much.”
With operating profit margins topping 40 percent, Fanuc makes 25 percent more income per employee than Goldman Sachs Group Inc., according to Loeb. He also compared the robot manufacturer with Apple Inc. in its tight focus on a small lineup of technologically superior products.
Still, Loeb said, the debt-free company would be worth “significantly” more if it bought its own shares back, using some of the $8.5 billion in cash sitting idle on its balance sheet.
“They could afford to do all of it,” Loeb said.
Fanuc spokesman Keisuke Fujii declined to comment. However, the company did disclose this week how it plans to spend some of its money — with an investment in new production capacity and research worth $1.1 billion. Fanuc’s stock has jumped more than 10 percent since Loeb’s letter.
There isn’t much history of homegrown investor activism in Japan, and foreigners who have tried have been sent home humbled. T. Boone Pickens was among the first. An oil tycoon who helped pioneer hostile takeover tactics in the 1980s, Pickens gave up on Japan in 1991 after losing a battle to gain a board seat at a supplier to Toyota Motor Corp.
In 2007, Warren Lichtenstein, founder of Steel Partners, said he planned to “educate” Japan’s corporate managers. He ultimately abandoned his takeover bid for Sapporo Holdings Inc.
“What’s the track record of activist investors in Japan?” said Alberto Moel, a technology analyst at Bernstein in Hong Kong and longtime Japan-watcher. “Not good. And Fanuc is probably one of the worst ones you can try.”
In the U.S., Loeb made a name for himself — and a personal fortune — by excoriating corporate managers in public, in hopes they’ll quit or change tack. After becoming the largest shareholder of Sotheby’s in October 2013, Loeb sent a letter to its chief executive officer telling him to step down because the auction house was suffering from “a lack of leadership and strategic vision at its highest levels.”
Loeb started to pay more attention to Japan after Prime Minister Shinzo Abe came to power in late 2012 promising to reinvigorate the economy with monetary easing, government spending and regulatory reforms.
“The whole zeitgeist in Japan is shifting,” Loeb said.
In May 2013, he proposed that Sony spinoff part of its entertainment business and offered to take a seat on its board. He got neither of those things, though he did manage to cajole the movie studio into cutting costs and walk away with a profit, he said.
“It’s plausible that it’s a self-fulfilling prophecy where Loeb makes some noise and the stock goes up,” said Amir Anvarzadeh, manager of Japanese equity sales at BGC Partners Inc. in Singapore. “But Fanuc will probably triple over 10 years, with or without or him.”
Putting pressure on Fanuc could prove to be more difficult compared with Sony. The robot maker has no outside board members and a reputation for being standoffish.
President Yoshiharu Inaba has rarely met investors and he doesn’t give briefings in Tokyo or Osaka like most other major CEOs.
Those who want information must trek to Fanuc’s remote campus in the village of Oshino, two hours west of the capital, where he takes questions twice a year, always in his yellow blazer.
Former shareholder David Herro, head of the $28.6 billion Oakmark International Fund, says he was rebuffed when he tried through back channels to get a meeting about Fanuc’s inefficient use of cash — the biggest complaint of most investors, not just Loeb.
Herro said he owned about 0.5 percent of the company from 2012 to 2014, a stake worth $100 million. Still, the best he could do was to get a meeting on the sidelines of a tool show in Chicago with one of Fanuc’s accountants, “some low-level guy.”
“Yes, we made an effort to talk to the top people and, no, we did not succeed,” Herro said. “They are less prone to grant access to management than most companies in Japan or the world. Their level of tight-lipped-ness is markedly different. It’s a very good business, but they run that thing like it’s a family farm.”
Loeb wouldn’t say exactly how many Fanuc shares he bought — his policy is to disclose only what’s legally required — but he said Third Point would rank among the top 10 shareholders that choose to show their positions.
Fanuc’s 10th biggest owner, Nikko Asset Management Co., has a 1.8 percent stake, according to data compiled by Bloomberg, suggesting that Loeb has at least as much. Fanuc is its own biggest shareholder, with 18 percent.
Fanuc was spun off from Fujitsu Ltd. in 1972 and over the next four decades founder Seiuemon Inaba built it into the world’s biggest supplier of industrial robots. Its computerized controls, used in more than half of the world’s machine tools, give lathes, grinders and milling machines the agility to turn metal into just about any manufactured product, from a titanium hip implant to the aluminum strut in the wing of a Boeing 747.
Fanuc’s Robodrill, an all-in-one machining center that’s like a giant pocketknife for carving steel, is used to shape the shiny metal band that wraps around the iPhone. Sales have jumped sixfold in the last five years, according to Loeb.
“Big picture — they’ve got great clients like Apple, and with technology and productivity improvements and labor costs going up, it’s an obvious area of growth,” Loeb said.
Fanuc’s success and its insularity stem from its founder. An engineer who studied artillery design during World War II at the University of Tokyo, Inaba invented the electro-hydraulic pulse motor in Fanuc’s first controls.
He also instilled the company with an authoritarian culture and its ubiquitous yellow color, which he chose because “it promotes clear thinking,” according to Fanuc lore. On rare tours of his factories, a retinue of secretaries would sweep leaves from the chairman’s path as he walked.
Morten Paulsen, head of Japan research at CLSA Asia Pacific Markets, said there have been some small signs of a thaw since late 2013 when Seiuemon stepped down, leaving his son, Yoshiharu, firmly in control. Seiuemon’s grandson, a 37-year-old with a Ph.D. in mechanical engineering from the University of California, Berkeley, became a board member at the same time.
“This company is less of a one-man show than what it was,” Paulsen said.
Graeme McDonald, an analyst at Citigroup Inc. who met with Loeb’s research team in Tokyo in the months before Third Point took its stake in Fanuc, says some clients have recently been able to get meetings with Inaba, after years of being locked out.
“Maybe some of these shareholders have finally been given the mark of acceptance,” McDonald said. “But you need to go around the block a few times. These guys have been invested in Fanuc for 10 years or more.”
For Loeb, an investor who often holds shares for months rather than years, Fanuc is a harder target. In 2013, when he embarked on his public negotiation with Sony, he flew to Tokyo where he was able to hand-deliver his demands to CEO Kazuo Hirai.
With Fanuc, he’s skeptical he’ll even get a meeting.
“I’m not used to companies not meeting with their shareholders, but it’s been a long-standing policy of theirs,” he said. “It’s the 21st century. If they want to be a public company, they should communicate with their investors. That’s our message.”
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