TOKYO (Reuters) – Japanese corporations are more and more turning to funding banks and public relations firms for advice on coping with potential approaches by activist buyers who’re concentrating on low valuations and cross-shareholdings within the nation.
A person is seen at a a business constructing at closing hour at a monetary district in Tokyo, Japan, November 22, 2017. REUTERS/Kim Kyung-Hoon
Among these advising firm board members on the best way to deal with activists are Morgan Stanley and Bank of America Merrill Lynch. Two different banks, who declined to be named due to the sensitivity of the difficulty to shoppers, additionally advised Reuters they have been teaching Japanese executives on partaking with such buyers.
Japan was the highest vacation spot in Asia for activist campaigns final yr, with its corporations the goal of a 3rd of all such campaigns within the area, in accordance with a report by JP Morgan.
The development of firms in search of advice exhibits a shift is underway in Japan’s angle towards activists. Its corporations have lengthy held a status as a graveyard for buyers demanding change, with activists historically seen by boards as asset-strippers to be resisted, not official buyers with whom to interact.
“It is like a regular medical check-up – we do it regularly for Japanese clients even before they are approached by an activist,” stated Akihiko Manaka, head of Japan mergers and acquisitions at Bank of America Merrill Lynch.
“We offer Japanese clients analysis to look at the industry benchmark in terms of financial statistics as well as corporate governance and shareholding structure.”
A way that executives are more and more ready to pay attention is encouraging extra activists to hitch the fray, analysts stated. Last month, U.S. hedge fund ValueAct Capital introduced its first-ever Asian funding with the acquisition of a $600 million, 5 % stake in Japanese medical gear and digital camera maker Olympus Corp. ValueAct tends to keep away from public battles with corporations in favor of closed door-discussions.
And Elliott Management has taken a stake of greater than 5 % in Japan’s Alpine Electronics and plans to make vital proposals, in accordance with a submitting by the activist U.S. hedge fund final week.
That comes after Hong Kong-based activist fund Oasis Management objected to the elements maker’s sale to a much bigger affiliate.
POLICY, VALUATION DRIVERS
Investment banks aren’t the one ports of name for Japanese corporations getting ready to cope with activists. Three public relations firms described to Reuters rising demand for such providers.
“We have done a lot of work with companies on vulnerability assessments, helping them proactively assess where they may be susceptible to activist demands before an activist arrives or begins agitating for specific changes,” stated Nicola McGowan, managing director at Finsbury Japan.
Activists have additionally taken coronary heart from company reforms pushed by the federal government. A governance code launched in 2015 and up to date later lists conditions when boards can contemplate ousting a chief government – a key shift in Japan’s non-confrontational working tradition.
The potential to untangle an internet of cross-holdings and a company tendency to hoard money have additionally attracted activists, as has Japan’s comparatively low valuations. The blue-chip Topix 500 is buying and selling on 14 occasions earnings, in line with ThomsonReuters knowledge, in contrast with 22 occasions for the US S&P 500.
“Japan is the ideal target place – there’s so much value to be unlocked,” stated Zuhair Khan, an analyst at Jefferies in Tokyo, who stated the lingering custom of cross-holdings might make activists’ activity tough.
Examples of profitable activism at corporations, particularly bluechips, stay uncommon in Japan. And even in instances the place change does occur, firms not often acknowledge the position performed by activists.
In 2015, Japanese robotic maker Fanuc Corp raised dividends and inventory buybacks after calls for by activist investor Daniel Loeb for higher shareholder returns. Fanuc stated on the time it was responding to the federal government’s push for higher company governance and to not Loeb’s calls for.
And activist hedge fund investor Daniel Loeb’s Third Point failed in 2013 to get electronics and leisure agency Sony Corp to partially spin off its leisure enterprise.
STEPPING IT UP
Still, emboldened by the federal government’s governance push, activists have grow to be more and more vocal of their calls for for change. The shift is forcing corporations to take a look at easy methods to cope with activists earlier than as nicely as after they suggest modifications, bankers stated.
Seth Fischer, founding father of Oasis, whose campaigns have helped produce strategic change at Nintendo Co and lift the worth Panasonic Corp paid to take a unit personal, has over the previous 18 months used extra public techniques to push corporations for change.
“Every engagement starts soft but if we don’t get meaningful dialogue, we escalate to writing letters, then setting up websites and maybe going as far as proxies and lawsuits,” he stated.
“Companies are engaging more and they’re asking banks to help them figure out how to address our concerns – which hopefully means they’ll meet us somewhere in the middle.”
Writing by Thomas Wilson; Additional reporting by Jennifer Hughes in Hong Kong; Editing by Muralikumar Anantharaman