Dan Loeb Asks Fanuc To Conduct A Large Buyback

Activist investor Dan Loeb has asked Japan’s robot maker Fanuc to conduct a large buyback soon and fix its “blatant capital inefficiency.” The activist investor known for his stinging criticism has taken a more measured approach in Japan where shareholder activism has a mixed trend. Earlier, Sony rejected his call to partially spin off its entertainment arm.

Dan Loeb’s “large” stake in Fanuc

As reported by ValueWalk, in his Q4 letter to shareholders, Loeb disclosed that his hedge fund Third Point has taken a stake in Fanuc. He described Fanuc as a unique company with a long history of being the best and fastest to market in everything it does. He commended Fanuc’s targeted innovation combined with a strong emphasis on reliability and service, which made virtually all of Fanuc’s products blockbusters.

Third Point sent a letter to Fanuc this month and urged the robot maker to make better use of its $8.5 billion cash pile by buying back shares. Though Loeb hasn’t disclosed the investment size, he said the stake is large enough to place Third Point among the top 10 shareholders in Fanuc.

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The activist investor called on the cash-rich, family-run company to get on board with the changes happening under Japanese Prime Minister Shinzo Abe, saying that Japan is “moving forward” on corporate governance but Fanuc is not.

In his interview with the Financial Times, Loeb said, “Fanuc is an incredibly focused company operationally but the company trades at a low valuation because they have not yet moved forward with the society in respecting shareholders and implementing better capital allocation.”

Fanuc to double its investment

Fanuc, known for its terse communication with shareholders, has yet to reply to Loeb’s letter. However, in recent interviews with Japanese media, Yoshiharu Inaba, its president, said the company has no plans to change its investor relations policy and will continue to expand its core industrial robot business.

Last Monday, the cash-rich Fanuc said it would double its planned investment in a new factory to 100 billion yen ($844 million), although it said that move was unrelated to Third Point’s call for more buybacks.

However, the activist investor told Reuters by email that the plan to double investment in a new factory would go little toward addressing “an embarrassment of riches” on the firm’s balance sheet. He wrote, “We like that Fanuc is investing and expanding capacity. But we take great issue with the inefficient balance sheet.”

Fanuc, one of the world’s largest industrial robot makers, has operating margins of around 40% compared with under 10% for some of its peers. The secretive robot maker has no debt and ended its last fiscal year with cash and equivalents of 824 billion yen ($6.9 billion) and total assets of 1.3 trillion yen.