Inside Fanuc’s Decision to Meet Loeb, Hand Investors $1 BillionMasatsugu Horie
Yoshiharu Inaba, president of Japan’s Fanuc Corp., said he didn’t recognize his own company when he saw it represented in the media. Japan’s leading maker of industrial robots was portrayed as peculiar and almost cult-like, obsessed with privacy and the color yellow.
This is what prompted the son of the company’s founder to do something his father never would: He opened the company’s doors to outsiders, first to top investors and later to the media. He felt like he had to.
“It’s so hard to turn around wrong images once they are out there and we are concerned that may affect our business,” said Inaba, a gregarious 66-year-old, in an interview. “We’ve decided to change our policy to speak to the press.”
Fanuc’s turnabout is one of the biggest surprises to come out of corporate Japan this year. Daniel Loeb, a U.S. hedge fund manager, took a stake in the company earlier this year and publicly prodded it to distribute more cash to investors. Given the dismal track record of activists in Japan and Fanuc’s reputation for extreme reclusiveness, failure seemed inevitable.
Instead, Inaba shocked almost everyone. Within weeks, Fanuc said it would consider Loeb’s request and started a shareholder relations department for the first time. The next month, the company said it would double the percentage of profit it would pay out to shareholders. Shares surged.
Inaba is friendly and engaging in person, prone to long, detailed explanations to make his points. During an interview at the company’s headquarters in the foothills of Mt. Fuji, he wears a yellow jacket the same shade as those worn by the two executive vice presidents who joined the discussion. It’s the color used for their robots, a few shades lighter than Caterpillar Inc.’s construction gear.
Inaba said much happened behind the scenes before the company’s April 27 announcement of its increased payout. Fanuc met with each of its 20 largest investors, including a session with Loeb in April.
Fanuc has insisted its new friendliness to shareholders is a product of business and financial conditions, rather than pressure from Loeb or the government of Prime Minister Shinzo Abe, which is implementing a corporate governance code that mandates return on equity targets for companies.
“We have never been asked by the government to improve corporate governance,” Inaba said. “It’s just our timing. The direction the Abe administration is taking just happens to have coincided.”
Inaba said the company had been debating what to do with its cash even before Loeb and Abe. Now with a stockpile of about 1 trillion yen ($8.3 billion) in cash and short-term investments, the manufacturer can fund future investments in the business and still raise the payout ratio to 80 percent of net income over five years, he said. Fanuc shares have surged 30 percent, adding about $12 billion to the company’s market value, since Loeb disclosed his stake.
Fanuc’s adaptability won praise from Loeb, whose Third Point LLC hedge fund has made the world’s largest maker of controls that run machine tools its biggest holding.
“Dr. Inaba’s consistent adaptability and sharp focus have made Fanuc a world-class company,” Loeb said in a mid-March e-mail. “We are pleased he is applying these same principles to capital allocation and investor engagement.”
The company’s growth has tracked the rise of automation at factories making everything from cars to smartphones and televisions. Its own factory floor is crammed with trademark yellow robots in constant motion making other robots.
The company’s ambivalence about the media hasn’t kept it out of the news, as its financial performance has attracted attention on its own.
Operating profit margins at Fanuc surpass 40 percent and the company makes 25 percent more income per employee than Goldman Sachs Group Inc., according to Loeb. He also said in a February letter to Third Point shareholders that Fanuc’s tight focus on a small lineup of technologically superior products makes it similar to Apple Inc.
Fanuc already said that for the year ended March, it will double its dividend ratio to 60 percent, handing investors a payout worth about $1 billion. Net income surged 87 percent last fiscal year to 207.6 billion yen.
The changes at Fanuc go only so far. Inaba has yet to give briefings in Tokyo or Osaka, something almost all of his corporate peers do regularly. The rare one-on-one interview took place at headquarters in Oshinonura, Yamanashi prefecture, an hour by car from the nearest bullet-train station.
Press briefings won’t become common either.
“I’m sorry, but we will continue to keep media access to the minimum necessary,” he said.
The company intends to hold on to some other traditions too, like the use of its trademark yellow. The public relations chief wore a shirt the same shade as Inaba’s jacket, matching the vests and skirt worn by the assistant who greeted a reporter, handing him a yellow oshibori, or moistened towel.
“It’s not true, as has been reported, that yellow is my father’s favorite color,” Inaba said of founder Seiuemon Inaba. “But many people link Fanuc with yellow, so we have no plan to change it.”
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