Katakura Industries Co., a Japanese company founded more than a century ago, is no stranger to reinvention. Once a silk producer, it has diversified into making underwear, manufacturing fire engines, operating shopping malls and even bee-keeping.

Now, activist hedge fund Oasis Management Co. is pushing Katakura to reinvent itself yet again — this time by ditching businesses that don’t meet certain profit targets. The Hong Kong-based fund, which owns a 3 percent stake in Katakura, says the diversity of ventures isn’t sustainable and has put forward three proposals aimed at improving profitability at this week’s shareholders meeting in Tokyo.

These proposals promise to shake up the status quo at Katakura, where tradition reigns and new employees visit its former red brick silk factory, which is now heritage listed, as part of their induction into the company.

Katakura will be another test case for Japan’s progress on corporate reforms under Prime Minister Shinzo Abe. Activists have scored some victories of late, with New York hedge fund manager Daniel Loeb spurring a restructuring plan at Seven & I Holdings Co. in October and winning the resignation of the chief executive officer.

“Our company is an old company, founded 144 years ago,” Kenichi Mizusawa, planning department general manager at Katakura, said in an interview in Tokyo this month. The company has decried Oasis’ suggestions as “extremely short-term.”

“We can’t suddenly kill things off completely,” Mizusawa said.

Oasis’ chief investment officer Seth Fischer, 44, is a backer of Abe’s changes intended to make companies use cash better and protect the rights of all shareholders. His firm, which manages about $1 billion and invests 80 percent of its money in Asia, is pushing Panasonic Corp. to sweeten its offer for listed unit PanaHome Corp., and last year urged Toshiba Plant Systems & Services Corp. to invest its cash hoard rather than letting much of it sit at parent Toshiba Corp.

“For a long time, Japan has been seen as a global corporate governance pariah for the way it treats corporate shareholders,” said Justin Tang, a director of global special situations at Religare Capital Markets in Singapore. “As long as there are governance issues, activist investors like Daniel Loeb and Oasis will be able to find opportunities to get involved.”

In the case of Katakura, Fischer is proposing they set a target for return on equity, a key measure of profitability. He recommends that the company exit out of units that don’t realize ROEs of at least 5 percent and avoid entering businesses that don’t have high prospects for returns. Katakura, which doesn’t disclose ROEs for its units, posted operating losses on its textiles business and on some of its newer segments such as honey-making and cosmetics, according to Oasis. Real estate is by far its most profitable business.

The proposals are “aimed at focusing management on increased disclosure, increasing profits and capital efficiency,” Oasis said in a Feb. 21 presentation published on a website it set up to lobby other shareholders. Its previous suggestions to the company for sustainable long-term growth were rejected “without any consideration,” prompting a more public confrontation.

Oasis has been trying to engage with companies through private meetings and letters since the firm’s inception in 2002, Fischer said. More recently, some of those efforts have become more public, with Oasis publishing open letters, making formal proposals to committees and posting its investment ideas on websites.

“If anything, our proposals are very modest. We deliberately made them uncontroversial,” Fischer said in an interview. “Katakura needs to focus on businesses that make money and are an efficient use of capital. The fact is many of its business lines have barely been profitable or have been loss-making for many years despite large investments.”

While Katakura admits that not all of its business activities are currently performing well, it says it was surprised by the proposals, given ongoing discussions since 2015 to increase profit in the mid-to-long term. After the proposals, Katakura was left with the impression that Oasis wanted it to withdraw from all businesses except the most profitable real estate segment. The firm is adamantly against this.

“In our long history, we’ve experienced how our main source of profit has shifted. Right now our real estate business is doing well, but we’re doubtful that this’ll last forever,” Mizusawa said.

Katakura’s shares surged on Feb. 15 after forecasting a 35 percent jump in 2017 operating profit. The shares have advanced 7.8 percent this year, compared with a 1.6 percent increase for the Topix index. Even so, the stock is trading more than 80 percent below a record set more than 27 years ago.

As part of plans to expand into new businesses, Katakura has started two day care centers for the elderly, and is producing “value-added” vegetables such as low-potassium lettuce.

Thursday’s shareholders meeting has divided the two major proxy advisory firms that provide vote recommendations to institutional clients across the globe, highlighting the difficulties in determining what’s in the best interests of shareholders.

Institutional Shareholder Services Inc. is backing Oasis’ proposals, citing Katakura’s “questionable track record which shows low profitability for all businesses except the real estate business,” according to a report published March 11. “Shareholders cannot reasonably rely on the board to come up with meaningful metrics,” it said.

Glass Lewis & Co. is taking the other side, saying in a March 8 report that the management team and board of directors “typically have more and better information about the company and the response that should be taken — if any — to a drop in the company’s ROE.”

Katakura’s top shareholder, trading house Mitsui & Co., declined to comment on Oasis’ proposal. Japan’s $1.3 trillion Government Pension Investment Fund, which is seeking new passive managers to encourage better stewardship, is also among the company’s biggest shareholders.

While activist investors such as Oasis can help draw attention to governance issues, it’s not enough for some market observers.

“Change needs to start with the guys at the top and GPIF needs to lead the way,” Religare’s Tang said. “Once companies see that they’re very serious about corporate governance, change will happen. Otherwise the status quo will remain.”

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