Activist investors, Japan's the next place to go. Yes, you heard right.
In the past two weeks, Hong Kong-based Oasis Management Co. has managed to score victories against two of the country's oldest and biggest companies. The hedge fund got Panasonic Corp. to up its offer for a unit the electronics maker is seeking to take private, while also forcing Toshiba Corp. to return cash that a listed subsidiary had deposited with its parent.
The triumphs are testament to a huge shift in Japan's insular company culture in the wake of a corporate-governance code implemented by Prime Minister Shinzo Abe in 2015. It's a far cry from the days when U.S. financier T. Boone Pickens was met with hecklers shouting "Yankee go home!" during his failed 1990 attempt to win a seat on the board of Koito Manufacturing Co., a Toyota Motor Corp. supplier.
On Friday, Panasonic canceled an all-stock offer to buy out minority investors in housebuilder PanaHome Corp. Based on that day's close, the bid represented an effective price of 1,012 yen ($9.19) per PanaHome share, a premium of about 18 percent to its undisturbed value prior to the December bid. After pressure from Oasis, Panasonic substituted a tender offer of 1,200 yen a share in cash, valuing the bid at 92.4 billion yen.
The game may not be over yet. Panasonic's amended offer is still well short of the 1,500 yen sought by Oasis founder Seth Fischer. PanaHome shares surged 19 percent to 1,229 yen on Monday, closing above the tender price in a sign some investors are betting the bid will be further sweetened. Oasis is PanaHome's biggest shareholder after Panasonic, owning 8.95 percent, according to data compiled by Bloomberg.
The hedge fund has already shown its willingness to play hardball by taking directors of Toshiba Plant Systems & Services Corp. to court. Toshiba Plant said this month that it terminated a deposit agreement with parent Toshiba Corp. after Oasis filed a provisional injunction with the Yokohama District Court. The unit had 87.8 billion yen parked at Toshiba at the end of last year.
The wins for non-Japanese shareholders are starting to add up. Six months ago, U.S. activist investor Daniel Loeb of hedge fund Third Point LLC stopped the ouster of Seven & i Holdings Co. President Ryuichi Isaka and hastened the expansion of the company's profitable convenience-store business in North America.
With more battles ahead, that trend should benefit minority investors. So many Japanese units of big firms are sitting on cash that more parent buyouts are inevitable. In a report last month, Jefferies identified 20 cash-rich companies that could be candidates, among them Sony Corp.'s Sony Financial Holdings Inc. and Nissan Shatai Co., a unit of Nissan Motor.
PanaHome had more than 125 billion yen in cash as of March 31 and almost no debt, in a sector where the average net debt-to-equity ratio is 69 percent, according to data compiled by Bloomberg.
Toshiba Plant boasts net cash of 92 billion yen, equal to 76 percent of shareholders' equity. The unit's funds will have been a boon to Toshiba Corp., which is trying to sell its memory-chip business and has warned that its survival may be at risk after losses at the Westinghouse Electric nuclear unit.
In the past, hedge funds in Japan faced not just hostile boards but a belligerent press and government in their attempts to shake up companies. Abe's push to have companies use cash more productively and better protect minority shareholder rights has changed the landscape.
That may spell an end to on-the-cheap buyouts such as Toyota's $3.1 billion purchase of Daihatsu Motor Co. last year (which was opposed by Stamford, Connecticut-based Arga Investment Management LP) -- given the right kind of prodding from hedge funds.
The Yankees (and others) are no longer being told to go home. That can only mean more opportunities for overseas activist investors.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
(Adds net cash data on PanaHome and Toshiba Plant in the ninth and 10th paragraphs.)
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