Christopher Langner is a markets columnist for Bloomberg Gadfly. He previously covered corporate finance for Bloomberg News, and has written for Reuters/IFR, Forbes, the Wall Street Journal and Mergermarket.

Activist funds are finding fertile terrain in Japan as they identify what may be recurring mispricing of mergers and acquisitions. The hard part will be overcoming a deeply ingrained culture of cozy corporate ties to achieve better terms for minority investors.

Oasis Capital, led by Seth Fischer, has emerged as the largest minority shareholder in PanaHome Corp., a maker of prefabricated housing. The fund is now pushing for improvements to a stock-swap offer that parent Panasonic Corp. has made for the 46 percent of PanaHome that it doesn't already own. Fischer's argument is that the company would command a much higher price if sold in a competitive auction, the Financial Times reported.

Its case resembles a claim put forward by TIHT Investment Holdings Pte, a private equity firm partly owned by Singapore's Temasek Holdings Pte,  in the Tokyo District Court. TIHT is asking the court to review the price Nippon Life Insurance Co. paid for a stake in Mitsui Life Insurance Co., arguing that it was too low.

It's hard to say to what extent the funds may be right, but a look at Japan's domestic M&A deals does suggest that they are cheap. The median price-to-book value ratio for acquisitions that involve a Japanese purchaser and seller is 1.1 times. That's half what the median company fetches in France and barely a third of the U.K. multiple.

Japanese Pittance
The median price to book value of mergers between companies in Japan is a fraction of what it is in other developed nations
Source: Bloomberg

The median price to enterprise value, which takes into account how much debt the company has, is 0.64 in Japan, a fraction of what's paid in transactions between two domestic companies in France, Germany, the U.K. or the U.S.

In Your Debt
Even when debt is included in the equation, Japanese companies are fetching low prices
Source: Bloomberg

Intra-Japan deals also look inexpensive relative to profits. The median company fetches only 5.3 times its earnings before interest, tax, depreciation and amortization, compared with 9 in the U.K. 

No Gain
All-Japan deals are cheaper relative to earnings than transactions in other developed markets
Source: Bloomberg

Acquisition prices aren't challenged often in Japan, however. When they are, it can be hard to make a case in court. For one thing, valuations are subjective, involving assumptions about future cash flows and how they should be discounted. If in doubt, judges have little incentive to challenge what has already been determined and accepted by majority shareholders.

The idea raised by both TIHT and Oasis would make for an interesting experiment, though. What if agreed deals were opened to outside bidders? That wouldn't be without risk for activist investors: The resulting price could be lower as well as higher. These hedge funds are betting on more lavish paydays, as Chinese buyers hungry for offshore acquisitions and frustrated by U.S. rebuffs enter the fray for Japanese assets.

The tougher question may be whether Japanese shareholders will be willing to sell their companies to foreigners, especially Asian neighbors with whom the country has such a contentious relationship.

In the end, activist funds may find that price is only a small part of the equation. Breaking Japan's cozy corporate culture won't be that easy.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Christopher Langner in Singapore at

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