Palliser targets Japanese rail company Keisei (updated)

ORIENTAL LAND

18/10/2023 02:28

(Updates with share moves in Tokyo in 4th, 12th paragraphs.)
    By Svea Herbst-Bayliss
       NEW YORK/TOKYO, Oct 18 (Reuters) - 
    Palliser Capital, which owns a 1.6% stake in Japanese rail
operator Keisei Electric Railway  9009.T , on Tuesday said the
company is trading at a large discount and has room to release
value.
    The company, which runs one of the main lines from Narita
airport into the center of Tokyo, currently trades at a "huge
43% discount to intrinsic value", Palliser's founder and chief
investment officer James Smith said at the 13D Monitor Active
Passive Investment Summit.
    There is a "unique opportunity to release $4.5 billion in
latent value and catalyze future growth," he said.
    Keisei shares surged as much as 6.5% in Tokyo trading on
Wednesday, leading peers on the Nikkei  .N225  index in the
morning session.
    Smith will meet with the company's top management next month
and has already held some 12 meetings over the last two years.
    Keisei earlier declined to comment. 
    Palliser's efforts come at a time foreign investors are
taking new stakes in Japan and pushing companies to improve
governance and boost value for shareholders.
    Smith said the root cause of Keisei's value gap is its
disproportionate stake in its leisure and tourism subsidiary
Oriental Land Co  4661.T  (OLC), the operator of Tokyo
Disneyland, which is worth over $8 billion, accounting for 80%
of Keisei's intrinsic value.
    But Smith, who spent years working for Elliott Investment
Management and spent time in Asia, said one of the most
important points of investments in Japan is to be patient and
polite.
    Many activist investors hope for speedier improvements but
Smith cautioned that expectations for investments in Japan must
be adjusted. 
    He said three steps would go a long way to unleashing value.
He suggested right-sizing the OLC business to below 15% and
resolving the OLC accounting distortion. Also he said the
company needs to fix its weak corporate governance.
    OLC was among the biggest losers on the Nikkei, falling as
much as 2.8%.

 (Reporting by Svea Herbst-Bayliss; Additional reporting by
Rocky Swift in Tokyo; Editing by Josie Kao and Miral Fahmy)
 ((svea.herbst@thomsonreuters.com; +617 233 2138; Reuters
Messaging: svea.herbst.thomsonreuters.com@reuters.net))