Record shareholder activism is combining with rare hostile takeover bids in Japan, in a trend that’s seen as good news for investors in the country’s ¥675 trillion stock market.
Activists such as Elliott Management Corp. have been snapping up shares in targeted firms and agitating for a higher price. At the same time, corporate Japan itself has also become involved in the battles, making unsolicited — and opportunistic — offers for peers.
In the latest example on Friday, Hoya Corp. offered to buy NuFlare Technology Inc., seeking to thwart Toshiba Corp.’s earlier proposal to take full control of its listed affiliate. A fund linked to famed homegrown activist Yoshiaki Murakami sits on NuFlare’s shareholder register. That comes as a high-profile tussle for control plays out at the developer Unizo Holdings Co., which also features a mix of shareholder activism and potentially hostile bids.
“There have been more situations this year than in recent memory,” said Travis Lundy, a special situations analyst who publishes on Smartkarma. “This is very good for Japanese equities. When it becomes socially acceptable for Japanese companies to try to buy other companies on an unsolicited basis, that means that one has to expect more of it.”
Hoya offered Friday to spend as much as ¥147.7 billion ($1.35 billion) for NuFlare at ¥12,900 a share, higher than Toshiba’s earlier bid to buy out public shareholders at ¥11,900 a share. Hoya said it hasn’t discussed the offer with NuFlare, while Toshiba — whose affiliates own more than half of NuFlare — said there’s no change in its plans to complete the deal. NuFlare’s shares surged 12 percent Friday to ¥13,330, suggesting investors think there are higher proposals to come.
Activists such as Murakami, one of the highest-profile Japanese investors, have also pounced on the situation. Aoyama Fudosan, a fund linked to Murakami, reported earlier this month it had a 5.02 percent stake in NuFlare and said it may give advice or make proposals to management.
Meanwhile at Unizo, a surprise hostile tender offer by travel agency operator HIS Co. in July spurred a bidding war, with global heavyweights Blackstone Group Inc. and Fortress Investment Group making competing offers for the previously little-known Tokyo-based property firm. Elliott has become Unizo’s largest shareholder and has urged it to consider accepting the highest bid.
Prime Minister Shinzo Abe has been calling for the replacement of traditionally friendly shareholders with investors who will urge executives to run their companies better. He introduced a stewardship code for investors in 2014 and a complementary set of rules for companies the following year, all with the aim of making Japanese firms more profitable and capital-efficient.
This has emboldened activists to demand more from corporate Japan. Shareholders made proposals at the annual general meetings of 54 companies in June, the most on record and up by 14 compared with the previous year, according to IR Japan Holdings Ltd. data.
One more surprising development has been the increase in unsolicited takeover bids from Japanese companies themselves.
“Corporate activism across the continuum, from friendly to hostile, minority agitation to competitive situations, is on the rise in Japan and markedly so in 2019,” said Justin Tang, head of Asian research at United First Partners, a special situations advisory firm. “The increasing number of corporates that are engaging with shareholders is a manifest sign of a changing corporate culture.”
One flashpoint for activism has been attempted takeovers by listed companies of their listed subsidiaries or affiliates. So-called parent-child listings have been criticized by corporate governance specialists for creating conflicts of interest between the listed parent and minority shareholders of the subsidiaries. One particular point of dispute has been the price the parent is willing to pay to buy out its affiliates.
The NuFlare situation seems to be a case in point, given the higher offer and the appearance of the Murakami-linked fund. Another example earlier this year was Bandai Namco Holdings Inc.’s tender offer to buy the shares it didn’t already own in its affiliate Sotsu Co. RMB Capital, a Chicago-based activist, argued the price was too low and said it will consider legal action after the tender offer was completed.
Before that, Hong Kong-based hedge fund Oasis Management Co., another well-known activist investor, said the price was too low in two similar takeovers: Panasonic Corp.’s acquisition of PanaHome Corp. and Alps Electric Co.’s purchase of Alpine Electronics Inc.
The Tokyo Stock Exchange has acknowledged there is an issue. It said in November it set up a study group to examine conflicts of interest regarding parent-child listings and that it plans to introduce tighter rules for such arrangements in February.
But to Taizo Ishida, a San Francisco-based portfolio manager at Matthews Asia, all of this upsurge of activism and deal activity is a positive sign.
“I’m seeing continuing efforts, a continuing push from all angles,” he said in a phone interview. “I’m pretty encouraged in terms of governance. It’s happening. It’s real.”