Activism Takes Root In Japan by Activist Insight

Start to believe the hype: the number of companies targeted is set to more than double this year

The number of Japanese companies publicly subjected to activist demands reached 13 in the year to July 31, compared to 8 in the whole of 2015.

Despite much talk of a prospective increase in activism, mainly following activist investor Dan Loeb’s forays into the country, the level of activity has been broadly stable, with 7 companies publicly targeted in 2013, rising to 8 in each of 2014 and 2015 (activist short-sellers excluded throughout). Although proxy season has now passed for this year, activists are continuing to view the environment as favorable to activism, as recounted in the Activist Insight Monthly August 2016 cover story, Activism in Japan.

Activism, Japan

Activism Takes Root In Japan

Companies subjected to public demands by location of headquarters. *Year to 31/07/2016

The rise in activity has been driven by interest in the small-cap sector (US$250 million to $2 billion), where more than half (7) of the companies publicly targeted this year have fallen. Only one company with a market-capitalization of more than $10 billion has been publicly targeted this year, compared to three in the whole of 2015.

Balance sheet activism continues to be the dominant category for public demands, with M&A activism falling from as much as 22% of the total in 2013 to just 5% in the year-to-date. Governance-related demands have increased to 32% of all actions, up from 11% in 2013.

Activism, Japan

Activism type as a proportion of all public demands.

As in previous years, activism continues to be a largely imported phenomenon for Japan. (Note: Effissimo Capital Management is recognized in the data as a “foreign” activist as it is based in Singapore, while Murakami and C&I Holding is based in Japan even though its founder, Yoskiaki Murakami, is believed to be a resident of Singapore). The spatial distance between Japanese activists are their targets may be a reflection of the approach of Japanese investors to hostile activism.

Activism, Japan

Companies targeted by location of activist HQ (for Asia, both activist and target are assessed at country, not regional level).

Commenting on the data, Activist Insight spokesman Josh Black said, “Activism is becoming more common in Japan at the same time as corporate governance standards focused on increasing the independence of the board are becoming more exacting. While still far less common than in the UK, for example, the data indicate that activism can continue to thrive in an economy where returns have been weak – perhaps even more so.”