Japan is the new Disneyland of global activism

Mitsui Fudosan Co

07/02/2024 12:00

(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own.)
    By Una Galani
       MUMBAI, Feb 7 (Reuters Breakingviews) -    The next
challenge for activists in Japan is to get company bosses to
think bigger and move faster. U.S. fund Elliott Management wants
$24 billion Mitsui Fudosan  8801.T , the country's biggest
property group by value, to boost shareholder returns. Like many
of his compatriots, Mitsui’s President and CEO Takashi Ueda is a
convert to shareholder religion but could be more ambitious.
    The business of nudging company executives to better serve
investors has come a long way in a short time in Japan. Elliott,
ValueAct, Oasis Management and others can also expect a warmer
reception since the Tokyo Stock Exchange started this year
shaming companies into laying out their plans to boost
shareholder value. 
    Mitsui, where Paul Singer’s fund has amassed a roughly 2.5%
stake, per the Financial Times, is already making the right
noises. As of March last year, the company's stake in Oriental
Land  4661.T , which operates Tokyo Disneyland, was reclassified
as a financial investment. That's presumably a first step
towards a full disposal of the roughly 6% holding worth $3.4
billion and sale of other non-core assets, which could help fund
the 1 trillion yen - more than $6 billion - share repurchase
Elliott is seeking.
   High expectations have supported a rally after a decade of
underperformance. Mitsui shares this year have outperformed the
benchmark Nikkei 225, which is trading near a multi-decade high.
However the company's return on equity is only 6.9%, per LSEG,
compared to its own target of around 8% by 2025 and less than
peers Mitsubishi Estate  8802.T  and Sumitomo Realty and
Development  8830.T .
    The likely goal for Elliott is to push Mitsui into
committing to bolder action. Any underperformance or discount in
the company's market value to its assets will be especially hard
to accept in Japan where property has shown signs of
overheating. 
    Overall, the opportunities to engage with Japan Inc are
increasing. Thanks to rising activism, 2023 was a record year
for management buyouts. Yet there still remains a big gap
between the ambitions of executives and activists. Elliott has
already helped catalyse the country’s biggest buyout at Toshiba
and engineer a giant share buyback at SoftBank Group  9984.T .
Getting Mitsui to speed up on a path it is already on ought to
be straightforward.
    Follow @ugalani on Twitter
    
    CONTEXT NEWS
    Elliott Management is calling for Mitsui Fudosan, Japan’s
biggest property group, to sell non-core assets and launch a
share buyback to improve its returns, people familiar with the
situation told Breakingviews.
    The U.S. activist fund owns around 2.5% of Mitsui, the
Financial Times said on Feb. 5. Elliott wants the company to
sell its stake in Oriental Land and to launch a 1 trillion yen
($6.8 billion) share buyback, the report added. Oriental runs
Tokyo Disneyland.

 (Editing by Robyn Mak and Nivedita Bhattacharjee)
 ((For previous columns by the author, Reuters customers can
click on  GALANI/   
una.galani@thomsonreuters.com;  Reuters Messaging:
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