Activist Fund Oasis Eyes Kyocera, Canon After Nintendo WinTom Redmond
Oasis Management, the Hong Kong-based activist fund that called for the changes unveiled last month by Nintendo Co., is turning its attention to Kyocera Corp. and Canon Inc.
Oasis owns about 1 percent of Kyocera’s voting rights, according to a letter to the fund’s investors obtained by Bloomberg. It’s urging the Kyoto-based manufacturer to return cash to shareholders by selling its stake in Japan Airlines Co. and “greatly” reducing holdings of KDDI Corp., and to restructure its solar business, the March 26 letter says. Oasis is calling for Canon to take private two listed subsidiaries.
Oasis is the latest fund to push for change at Japanese companies, after Daniel Loeb’s Third Point pressed robot-maker Fanuc Corp. in February to buy back shares and communicate more with investors. Seth Fischer, founder and chief investment officer of Oasis, writes in the letter that businesses are more receptive to ways to boost returns as the government takes steps to improve corporate governance.
“Why do we think they will listen to us? We are not the first investor to ask,” Fischer writes in the letter, referring to Kyocera. “This time, however, it is not just us as foreign investors who are asking but the full force of the domestic establishment.”
Prime Minister Shinzo Abe is seeking to increase return on equity at Japan’s companies. The nation introduced a stewardship code last year, intended to get institutional investors to urge companies to use capital more efficiently. The regulator and the Tokyo bourse are starting a governance code for companies in June to complement these principles. A government-backed stock index that picks members for their ROE and profitability began in 2014.
Successful activist investing has been a long time coming in Japan, where efforts by Steel Partners, the Children’s Investment Fund Management UK and others have been largely rebuffed.
Fanuc’s shares jumped 13 percent on March 13 after the Nikkei newspaper reported the secretive manufacturer will consider ways to increase investor returns and start a shareholder-relations department. Nintendo surged 36 percent over two days in March after saying it would partner with DeNA Co. to develop games for mobile devices. Oasis had previously called for the Kyoto-based company to broaden its focus from consoles to smartphones.
Kyocera had a 13 percent stake in wireless operator KDDI as of Sept. 30, according to data compiled by Bloomberg. It owned 2.1 percent of Japan Airlines, the data show.
Selling the Japan Airlines stake, cutting holdings of KDDI and returning cash to shareholders would boost Kyocera’s return on equity, the Oasis letter says. The company’s ROE stood at 4.6 percent at the end of December, compared with 8.3 percent for the benchmark Topix index, Bloomberg data show.
More can be done to stem losses in Kyocera’s solar business, where lower feed-in tariffs in Japan and Chinese competition are curbing returns, Fischer wrote in the letter.
Canon should take private Canon Electronics Inc. and Canon Marketing Japan Inc., he wrote. Canon owns controlling stakes in Canon Electronics, which makes components, and Canon Marketing, which distributes the finished products, data compiled by Bloomberg show.
Parent-child listings are considered “ripe for abuse and represent bad corporate governance,” according to the letter. “Canon’s current financial standing and that of its listed subsidiaries puts the company in good stead to correct the current governance anomaly.”
Kyocera’s shares rose 1.3 percent today in Tokyo, while Canon jumped 3.2 percent. The Topix added 1.7 percent.
Elly Yoshikawa, a spokeswoman for Kyocera, said the company had received a letter from Oasis. She declined to comment on the contents, citing company policy, and said Kyocera isn’t aware if Oasis owns its shares. Jun Misumi, a spokesman for Canon, said the media department isn’t aware of any action by Oasis.
A spokesman for Oasis declined to comment on the content of the investor letter. The Financial Times reported some of the details of the letter on March 29.