Shareholder activism on the rise in Japan
Although still nascent, activism in Japan is picking up with the number of firms targeted set to double year on year.
According to data from Activist Insight, companies subjected to activist actions total 13 for the first half of 2016, while the full-year figure for 2015 was just eight. This sharp increase concerns mainly small caps ($250 mn to $2 bn), with only one firm with a market capitalization over $10 bn reportedly targeted these last six months, compared with three in 2015.
‘We think smaller companies are probably more attractive because they are easier for smaller funds to accumulate positions in, typically have lower institutional ownership and may have spent less time reviewing strategic options, allowing outside perspectives to lead to greater value creation,’ comments Josh Black, Activist Insight spokesperson.
Nearly half of demands remain related to balance sheet issues, while M&A activism has fallen from 22 percent in 2013 to 5 percent for this half-year, the data further reveals. Governance-related campaigns are also in the spotlight, concerning a third of all actions, up from 11 percent in 2013.
A notable example in the latter category is the boardroom shake-up at Seven & i Holdings led by activist Dan Loeb, who has also made demands at Sony and FANUC, as well as at ‘a few other positions with relatively little fanfare,’ Black explains.
A majority of campaigns (61 percent) are undertaken by activists based outside the country, a possible reflection of ‘the approach of Japanese investors to hostile activism’, while for the Asian region there is on average a near equal split between domestic and foreign-headquartered activists.
‘I think Japanese institutional investors have yet to prove themselves supportive of activist investors,’ Black points out. ‘You don’t see many proxy fights or shareholder proposals and the few that do happen don’t often result in a victory for the activist – one example being Kuroda Electric.’
Despite the rise in targets, the number of activist campaigns remains marginal compared with the rest of the world – and even on a regional level. In 2015, 410 activist actions were recorded in the US alone, compared with 53 for the whole of Asia including Japan.
‘Japanese stocks have been attractively positioned recently,’ Black notes. ‘As time passes, we’ll see whether the increase in activism is due to secular changes in the governance regime or economic factors.’