Third Point LLC, the hedge fund he founded, revealed a stake in IHI Corp. (7013) saying the investors are undervaluing the land and buildings owned by Japan’s biggest plane-engine maker. The announcement followed an investment disclosed in November in SoftBank Corp. and another in Sony Corp. made public in May last year.
Land and property assets of Tokyo-based IHI are worth 350 billion yen ($3.4 billion), more than half of the company’s current market value, Loeb said in a May 1 letter that disclosed his holding. The stock rose 5.4 percent, the most in more than nine months, to 430 yen, giving the company a market value of 665 billion yen. The stock is worth at least 1,000 yen apiece, he wrote.
“We believe we are investing in IHI at an attractive price because the market assigns an undeserved conglomerate discount to it,” according to the letter. “Should management decide to spin off the property into a separate company that could achieve substantial financial leverage for redevelopment purposes, the company would realize enormous value for shareholders.”
IHI, which makes parts for Airbus Group NV (AIR) A320 engines, on Feb. 4 increased its net income forecast to 27 billion yen for the year ended March 31. The company is due to announce its full-year earnings on May 8.
“IHI’s path to value could be substantially streamlined if management were to choose to increase its focus on its high return segments and continue its move away from the suboptimal conglomerate structure of the past,” according to the Third Point letter. A call to IHI wasn’t answered.
Last year, Loeb urged Sony to sell as much as 20 percent of its entertainment division in an initial public offering so that the company could focus on turning around the struggling electronics business. At the time, Sony shareholders had lost more than $100 billion in market value since 2000, according to data compiled by Bloomberg.
After Sony Chief Executive Officer Kazuo Hirai and the board rejected the proposal in August, the activist investor said he was “disappointed” with the decision and intended to “explore further options to create value for Sony shareholders.” In January, Third Point called for a “serious effort to restructure the PC and TV businesses,” according to a letter sent to the hedge fund’s investors.
In November, Third Point disclosed it had taken a stake in SoftBank valued at more than $1 billion. Loeb invested in SoftBank because of its long-term value and wasn’t agitating for asset sales, a person familiar with the matter said at the time.
The Japanese telecommunications services provider’s shares have declined 15 percent this year.
Loeb said in yesterday’s letter that the share price drop was “due to technical trading and that SoftBank’s fundamentals are stronger than when we initiated the position” in the fourth quarter.
“Taking a look at the current landscape, the decline in overinflated sectors, though painful in the short term, is healthy in our view,” according to the letter. “Consensus positions entering this year -- long Japan, long momentum, and short bonds -- have all underperformed, while value and emerging markets have accelerated.”
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