Japan is the new Disneyland of global activism

A walk in the park. The next challenge for activists in Japan is to get company bosses to think bigger and move faster. U.S. fund Elliott Management wants $24 billion Mitsui Fudosan, the country's biggest property group by value, to boost shareholder returns. Like many of his compatriots, Mitsui’s President and CEO Takashi Ueda is a convert to shareholder religion but could be more ambitious.

The business of nudging company executives to better serve investors has come a long way in a short time in Japan. Elliott, ValueAct, Oasis Management and others can also expect a warmer reception since the Tokyo Stock Exchange started this year shaming companies into laying out their plans to boost shareholder value.

Mitsui, where Paul Singer’s fund has amassed a roughly 2.5% stake, per the Financial Times, is already making the right noises. As of March last year, the company's stake in Oriental Land, which operates Tokyo Disneyland, was reclassified as a financial investment. That's presumably a first step towards a full disposal of the roughly 6% holding worth $3.4 billion and sale of other non-core assets, which could help fund the 1 trillion yen - more than $6 billion - share repurchase Elliott is seeking.

High expectations have supported a rally after a decade of underperformance. Mitsui shares this year have outperformed the benchmark Nikkei 225, which is trading near a multi-decade high. However the company's return on equity is only 6.9%, per LSEG, compared to its own target of around 8% by 2025 and less than peers Mitsubishi Estate and Sumitomo Realty and Development.

The likely goal for Elliott is to push Mitsui into committing to bolder action. Any underperformance or discount in the company's market value to its assets will be especially hard to accept in Japan where property has shown signs of overheating.

Overall, the opportunities to engage with Japan Inc are increasing. Thanks to rising activism, 2023 was a record year for management buyouts. Yet there still remains a big gap between the ambitions of executives and activists. Elliott has already helped catalyse the country’s biggest buyout at Toshiba and engineer a giant share buyback at SoftBank Group. Getting Mitsui to speed up on a path it is already on ought to be straightforward.

Context News

Elliott Management is calling for Mitsui Fudosan, Japan’s biggest property group, to sell non-core assets and launch a share buyback to improve its returns, people familiar with the situation told Breakingviews. The U.S. activist fund owns around 2.5% of Mitsui, the Financial Times said on Feb. 5. Elliott wants the company to sell its stake in Oriental Land and to launch a 1 trillion yen ($6.8 billion) share buyback, the report added. Oriental runs Tokyo Disneyland.