The Elliott Management v Toyota Group battle continues, with Toyota Fudosan being forced to extend the period of its tender offer due to insufficient support. As yet, the bidder has not further increased its egregiously low offer price, having already been forced to do so once, but we may not be far away from this happening.
The alternative to increasing the bid, is the Toyota Group simply walking away from the deal. This would entail a huge loss of face for what is arguably Japan’s most famous corporate group. Would they be willing to accept this simply to be seen to refuse to acquiesce to the demands of an activist and other minority shareholders? Potentially, but it remains to be seen. In the meantime, TICO continues to trade above the tender price:
Meanwhile, CVC has increased its bid for Mandom to outbid KKR. Recall that Mandom’s management had agreed a friendly take-private with CVC. The Murakami family, Hibiki Path, and all other sensible shareholders, felt the deal was priced far too low. The Murakamis bought a big stake and pushed for a higher price. Mandom threatened a poison pill and said they would consider other bids. CVC lifted its bid 29%, but then KKR indicated a further bid 11% higher than CVC’s offer. Management continued to support CVC, despite the higher bid from KKR, but now CVC have topped KKR’s bid by 5 yen.
This is a great outcome for the Murakamis, Hibiki Path, and for minority shareholders who would have otherwise been squeezed out at a much lower price.
While some activists seek a higher price from parties who try to gain control, others have sought control – or a great deal of influence – on their own part.
In previous monthlies, we discussed the appointment of an activist fund manager as the CEO of Tokyo Cosmos Electric following a proxy fight. Monden-san, of Axium Capital, has taken on that role, and is pursuing bolt-on M&A. Similarly, Nippon Active Value Fund’s Nishida-san was appointed an executive director of Helios Techno, responsible for M&A. Most recently, Kaihou has bought a large stake in Jibannet from the founder on its own balance sheet (not via a fund), with the stated aim of creating a “Berkshire Hathaway of Japan”. Kaihou’s fame with retail investors has seen the stock rise 5-fold in February!
This has been an approach a few activists have contemplated for some time. Investors may have heard us discuss the potential of this strategy from well before the launch of Senjin Capital Fund I. But why are activists pursuing this so aggressively now, despite the potential conflicts it creates with their core fund strategies?
The answer is quite simple. Next Generation Technology co IPO’d last year with a strategy to be a serial acquiror of Japanese industrial businesses. Public market investors are enamoured of this idea as it is widely known that there is huge improvement potential in these businesses, and they can be acquired very cheaply with favourable financing terms. So enamoured are investors, that NGT trades on 43x EV/EBITDA, despite having acquired its business portfolio companies, and planning future acquisitions, at single-digit EBITDA multiples.
As the Jibannet deal demonstrates, if an activist controlled or influenced company can establish itself as a serial acquiror, the re-rating of the stock could be swift indeed.
