Activist Investing via Value Edge
What is activist investing?
An individual or group that purchases large numbers of a public company’s shares and/or tries to obtain seats on the company’s board with the goal of effecting a major change in the company. A company can become a target for activist investors if it is mismanaged, has excessive costs, could be run more profitably as a private company or has another problem that the activist investor believes it can fix to make the company more valuable.
The reason for this post would be due to the recent Management Buyout (MBO) announced by Co-Cos Nobouka. I recently blogged about my purchase of this Japanese net-net which bagged me nearly 30% within a month or so. However, after further digging and the help of my Japanese friends, I realise that it was due to a MBO. However, at the buy price offered by the Management, it was a gross undervaluation of the company of roughly 50% discount to intrinsic value.
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What can us minority investors do?
- Given how almost 50% of the shares are owned by the Nobouka clan, it is highly likely that the MBO would go through. Assuming one has the financial means of taking Management to court demanding for an increase in the offer price. However, this is only a theoretical option as it is extremely rare that such demands are being met. Furthermore, from my understanding, Japanese courts deem a tender offer to be reasonable as long as a premium is offered over the last few weeks market price.
- We can reject the buyout and in the event the company does successfully delist, we would have to find a buyer for our shares ourselves. However, usually such transactions would be at a price lower than the MBO offer price due to the extreme low liquidity. Furthermore, whilst one could wait for the company to be listed again, such occurrences rarely happen.
Whilst activism in relatively hard in Japan, I believe it is definitely possible within Singapore. I have seen past cases such as Nera Telecommunications where minority shareholders had somewhat intense discussions over ValueBuddies (local value investing forum) regarding the offer price initially offered to take the company private. Given the many online platforms – forums and blogs, I believe it greatly aids us minority investors in preventing such occurrences from happening. That said, activist investing in Singapore still has a long way to go before we achieve the level seen in the US. Some notable activist investors within the US trying to help companies allocate capital more efficiently are Carl Ichan, Bill Ackman and David Einhorn (Here). Whilst many may not know, Buffett too was an activist investor himself in his early days such as his takeover of Berkshire Hathaway.