In Japan Inc, activist investors come in from the cold

A person passes a emblem of Japan’s Olympus Corp outdoors the corporate showroom in Tokyo December 21, 2012. REUTERS/Yuriko Nakao/File Picture

Yasuo Takeuchi remembers the horror he felt in 2017 when, as chief monetary officer of Japan’s Olympus Corp (7733.T), he was informed an activist investor had taken a stake within the firm: the barbarians had been on the gate.

However as he listened to proposals from ValueAct Capital, Takeuchi started to see the San Francisco-based fund as a possible catalyst for change at Olympus, which was nonetheless reeling from an accounting scandal and, he believed, remained too home in its outlook.

Quick ahead to 2021, a leaner Olympus is on monitor to double its working revenue margin to 20% by the subsequent monetary yr.

Olympus is a notable instance of how attitudes at some Japanese firms have quietly modified lately. The federal government’s latest push for higher governance has introduced in a wave of seasoned international activists, resembling Elliott Administration and Third Level, to Japan; the variety of activist funds working within the nation has additionally greater than doubled in three years.

In 2019, Olympus introduced a ValueAct accomplice, Robert Hale, onto its board. ValueAct owned greater than 5% of Olympus, the fund’s first funding in Japan, earlier than promoting a few of that late final yr.

“I used to be prepared to show all of our enterprise as common the wrong way up,” Takeuchi, now CEO, mentioned of the time he introduced Hale on board.

“Rob actually watches the corporate intently and analyses it. He has usually given us some nice perception in tips on how to execute,” he informed Reuters in an interview.

Olympus has since overhauled the normal seniority-based pay and introduced in additional abroad executives to make administration extra international. Takeuchi credit ValueAct with serving to him “assume deeper” about governance, resulting in the creation of nominating, audit and compensation committees.

Efforts to turn out to be a world medical-technology agency have accelerated. Olympus has purchased a number of abroad medical-equipment companies and bought its digital digicam enterprise that had been a long-time money-loser.

Takeuchi mentioned Hale by no means informed Olympus to promote the digicam enterprise, solely that he “identified points, like different exterior administrators”.

Hale has additionally helped Olympus talk its modifications to the market, in order to have a higher affect, Takeuchi mentioned.

Traders look like taking notice. The corporate’s shares have almost trebled since early 2019, versus a few 30% achieve within the TOPIX index (.TOPX).

ValueAct declined to touch upon the story.

‘MORE CONVINCING’

Traders, significantly international ones, have lengthy argued that many Japanese firms are unresponsive to shareholders and wish to enhance governance. Points round governance and administration have come underneath the highlight in accounting and different scandals at Toshiba Corp, Olympus and elsewhere.

Olympus’ plan to spice up effectivity “grew to become extra convincing across the time it determined to ask ValueAct to its board,” mentioned Takashi Akahane, senior analyst at Tokai Tokyo Analysis Middle.

Japanese chip and show supplies maker JSR Corp (4185.T), which is greater than 7% owned by ValueAct, can be inviting Hale onto its board.

The corporate hopes the American’s data and experience will increase its company worth, mentioned Director Hideki Miyazaki. It needs to hurry up choice making and turn out to be extra international, Miyazaki mentioned.

Joe Bauernfreund, chief government of London-based Asset Worth Traders (AVI), says he sees clear modifications at Japanese firms.

As a international investor focusing largely on smaller firms, his fund not often acquired to fulfill administrators of firms a couple of years in the past, he mentioned. “I feel there positively is a willingness on the a part of firms now to work in a extra constructive method with so-called activists.”

Activists themselves are additionally taking a distinct tack, shifting away from hostile takeover threats seen many years in the past to a give attention to governance and long-term company worth. That strategy, specialists say, is more likely to have extra success – and achieve extra assist from typical institutional buyers.

Final month, a movement by Singapore-based activist investor Effissimo Capital Administration in Toshiba Corp (6502.T) gained approval at a shareholder vote, the primary time at such a excessive profile firm in Japan. read more

Nonetheless, specialists notice it’s too early to say shareholder activism has taken full root in Japan.

Sony Group’s (6758.T) rejection of Third Level’s proposal to spin off its chip unit is a outstanding latest instance, and regardless of Effissimo’s success at Toshiba’s vote the agency’s administration is but to totally embrace the activist investor.

“Firms like Olympus are a couple of exceptions, with most companies hoping to keep away from activists,” Kazunori Suzuki, professor at Waseda Enterprise College, mentioned. “But when these early examples show profitable and obtain public acclaim, others could comply with swimsuit.”

Our Requirements: The Thomson Reuters Trust Principles.

— to www.reuters.com

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