Activist fund Elliott Management has become one of the largest shareholders in Dai Nippon Printing – a 147-year-old Japanese conglomerate with a large but obscure global stake in electric vehicle battery components and smartphone screens.
The stakebuilding only adds to a number of investments that Elliott has previously made in Japan – with Masayoshi Son SoftBank Group and Toshiba being the most prominent. People close to the fund are experimenting with extracting trapped value that could pave the way for more activity.
Elliott has quietly increased his investment in DNP over the past few months, according to people familiar with the situation, and now holds shares of a little under 5 per cent worth around $300mn, becoming the third largest external shareholder.
People close to DNP said Elliott’s initial involvement with the company, which has a market capitalization of $6.3bn and is now trading where it was 20 years ago, had focused on a number of demands: a more aggressive share buyback scheme, the sale of its shares. sprawling real estate holdings and the accelerated disposal of an extensive portfolio of shares in other Japanese companies.
DNP confirmed Elliott’s investment but declined to comment on the details of its engagement with individual shareholders.
If Elliott’s campaign is successful, it could strengthen other shareholder campaigns in the market that have attracted the likes of Dan Loeb’s Third Point and Oasis Management. Earlier this month, US hedge fund ValueAct called on shareholders in Seven & i to cancel the tax-free spin-off of the conglomerate’s 7-Eleven convenience store business.
Activists, foreign and domestic, see the Japanese equity market as a target: about half of the companies are trading below book value, and, according to analysts, more than a third of non-financial sit in hoards of cash that represent more than 20 percent of equity.
DNP is planning a meeting in March to present the main pillars of its new mid-term business strategy to investors. The company said it will listen to the voices of Elliott and other shareholders in formulating its strategy.
The process, another DNP shareholder said, could theoretically help refocus market attention on companies with greater value because of their status as one of Japan’s “hidden treasures,” with huge market shares in specialty areas.
These include the metal masks used to make small OLED screens of the type used in Apple and Samsung smartphones. A report from Nomura Securities explained that the global DNP is so large “that the market is almost an oligopoly”, without a major competitor.
In addition, DNP has been developing for several years the technology that produces the pouch containing lithium-ion in electric vehicle batteries. The company now has 70 percent of the global market, with end customers including GM, Volkswagen, Renault, Ford and Nissan.
The company, with business interests ranging from printer ribbon to food packaging and bookstores, has followed the classic pattern of many old Japanese companies. It has amassed an unwieldy portfolio of cross-shareholdings in other listed companies that currently represent more than 30 percent of total assets.
In addition to unnecessary value, ownership is considered a major obstacle to good corporate governance and efficient capital allocation.
A report by Institutional Shareholder Services, published ahead of DNP’s annual shareholder meeting last June, recommended a vote against the reappointment of the company’s chairman, Yoshitoshi Kitajima, and his son, Yoshinari, who became president. The two men, who were re-elected, hold less than 1 percent of the company between them. ISS has claimed responsibility on their behalf for DNP’s alleged misallocation of capital.
Although the company had previously said it would address cross-ownership issues, ISS found it had allocated 36.8 percent of its net assets to shares in other companies.