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【5 Activist Case Studies】An Analysis of Activist Investment Methods, Trends, and Past Cases
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"I want a more exciting job!"
"I want to increase my income!"
"I want to switch to the buy-side and advance my career as an investor!"
As activist investing becomes more active in Japan, I've been receiving many such consultations. Indeed, investment activities by activists and PE funds are becoming very vibrant in Japan, and the number of people aiming for careers in activist funds is increasing significantly.
Today's article explains activist investing. In this note, I will discuss activist investment methods and actual examples. For detailed information on how to join activist funds, career paths, and necessary skills, please check out the following article!
▼【How to Join an Activist Fund?】Career Strategies at Effissimo, Elliott, Oasis and Others!
What is an Activist Fund?
Unlike regular investors, activist funds actively exercise their rights as shareholders and pressure management to enhance shareholder returns through dividends and share buybacks, as well as demand business divestitures.
Their goal is to maximize investment returns through increasing corporate value.
In the Japanese market, activists' holdings in Japanese stocks have reached 4.8 trillion yen (about 1% of total market capitalization), and their influence continues to steadily expand.
Activist Investment Methods
Activist funds typically intervene in companies through the following methods:
1. Demanding Shareholder Returns
- Requesting increased dividends and share buybacks
- Encouraging the utilization of excess retained earnings
2. Governance Reform
- Demanding increase and renewal of outside directors
- Proposing transition to a company with nomination committees
3. Business Strategy Improvement
- Selling unprofitable businesses
- Promoting management efficiency
- Effective utilization of assets
The main strategy of activists is to maximize corporate value through shareholder proposals. They increase pressure on management by deepening cooperation with other shareholders, aiming for stock price increases through achieving increased dividends, share buybacks, and business divestitures.
Unlike regular hedge funds and asset management firms, activist funds characteristically demand improvements in management itself.
Traditional hedge funds, like individual investors, pursue investment methods seeking capital gains by purchasing undervalued stocks. They typically don't directly involve themselves in management, sticking to the basic strategy of finding and investing in attractive stocks.
In contrast, activists seek transformation of management itself. This is the decisive difference from conventional hedge funds.
In other words, they pursue maximization of shareholder value by shifting management policies themselves in a direction favorable to shareholders. Put differently, while hedge funds "invest in companies with good management," activists take the approach of "transforming the management of companies they invest in."
Examples of Activist Investments
Let's look at actual activist investment cases!
1. FANUC (2015)
◾️Activist: Third Point
◾️Demands: Share buybacks and dividend increases
◾️Results:
- Increased dividend payout ratio from 30% to 60%
- Changed disclosure policy from "minimum necessary" to proactive disclosure
- Committed to dividend increases and share buybacks over 5 years
Third Point criticized FANUC's "passive and irrational capital structure regarding shareholder value." In particular, they demanded effective utilization of ¥1 trillion in cash reserves and strongly requested regular share buybacks.
Third Point is known for active involvement in the Japanese market, including previously demanding Sony separate its movie and entertainment division.
The fund pointed out that FANUC's stagnant stock price was mainly due to "reluctance to engage with investors and analysts" and "unclear future earnings outlook," demanding improvements in these areas.
2. Toshiba (2017-)
◾️Activists: Effissimo Capital and others
◾️Background:
- ¥600 billion capital increase from activists in 2017 to resolve excess debt
- Foreign shareholder ratio increased to 63%
- In 2020, improper pressure on voting rights by management and METI was revealed
◾️Result: Led to fundamental reform of corporate governance
Effissimo Capital Management is a Singapore-based investment fund. Known as a "former Murakami Fund," founders Takashi Kosaka and Yoichiro Imai were still in their 20s when they disclosed their large stake in Toshiba.
Their basic strategy follows the Murakami Fund approach: acquiring concentrated positions in undervalued stocks with governance issues, demanding improvements from management, extracting measures like share buybacks, and then selling at higher prices. This Toshiba investment became one of Effissimo's representative cases.
The Toshiba acquisition is notable as it prompted changes in Japanese corporate governance. In fact, at the 2020 annual shareholders meeting, it was revealed that some voting rights results regarding Effissimo's director nomination proposal were not reflected, and management, along with a METI advisor, pressured Harvard University's endowment fund not to exercise their voting rights.
This was a serious compliance violation and could be seen as disregarding shareholders. While Toshiba disclosed internal investigation results, Effissimo, the largest shareholder, deemed them insufficient. They successfully passed a proposal demanding an independent investigation into the shareholder meeting's propriety, gaining support from other activists. This event was highly regarded as a "landmark turning point" in Japanese corporate governance.
This case seems to have truly heightened attention to corporate governance in Japanese companies.
3. Seven & i Holdings (2024)
◾️Activist: ValueAct
◾️Demands:
- Implementation of management improvement measures
- Proposal regarding separation of convenience store business
◾️Background: Multiple activists became involved with the company
ValueAct's investment philosophy is "maximizing portfolio companies' potential and supporting their transformation into global champions." While the fund typically emphasizes building constructive relationships with management through informal dialogue, they clearly indicate their willingness to exercise shareholder rights if such methods prove ineffective.
One of ValueAct's representative investment cases in the Japanese market is their involvement with Olympus.
In 2017, Olympus faced a serious management crisis due to an accounting fraud incident. Although there was initial internal caution about ValueAct's shareholder proposal to dispatch directors, the proposal was ultimately accepted after confirming positive evaluations of their North American investment track record, including Motorola.
Subsequently, Olympus achieved record sales and profits in fiscal 2023, with operating profit margin dramatically improving from 3% to over 20%. ValueAct positively evaluated their ability to "support the company's transformation in various ways as it aims to become a global champion medtech company."
Returning to the Seven & i Holdings case, ValueAct's involvement led to withdrawal from unprofitable businesses like Ito-Yokado and Sogo & Seibu. Since ValueAct began investing in 2020, Seven's stock price has more than doubled.
4. Kobayashi Pharmaceutical (2024)
◾️Activist: Oasis Management
◾️Background:
- Increased ownership stake to 7.54%
- Demanded extraordinary shareholders meeting
◾️Goal: Promotion of management reform
Oasis Management is a Hong Kong-based hedge fund. Like other activists, they characteristically focus on investing in companies with both undervalued stock prices and room for corporate governance improvement, actively making shareholder proposals.
In July 2024, the market's attention was drawn to Oasis's large stake acquisition in Kobayashi Pharmaceutical.
At the time, Kobayashi Pharmaceutical was in management turmoil, forced to change presidents due to health issues related to their red yeast rice supplement. It was a well-timed investment, acquiring a large stake while the stock price had fallen significantly.
Looking at activist trends in 2024, there's been an increasing trend of large stake acquisitions targeting companies whose stock prices have plummeted.
As seen in the Nissan case discussed below, activist funds acquired large stakes during significant stock price drops following earnings announcements, followed by rapid stock price increases.
5. Nissan-Honda Case (2024)
◾️Activists: Multiple funds involved
◾️Situation:
- METI approached Honda about rescuing Nissan during its management crisis
- Stock acquisition and integration pressure from activist funds
◾️Characteristic: New type of activism promoting industry reorganization
While Honda's rescue acquisition of Nissan is fresh in everyone's memory, activists were actually behind this too. On November 12, 2024, Effissimo Capital, a former Murakami Fund, acquired a large stake, causing the stock price to surge over 20%.
At the time, Nissan faced a serious management crisis.
Operating profit for April-June 2024 fell to just ¥1 billion (99% decrease year-over-year), and in April-September, operating profit decreased 90% year-over-year, with automotive business free cash flow recording a negative ¥448.3 billion.
While President Makoto Uchida announced restructuring measures including 20% production capacity reduction and 9,000 job cuts, concerns about cash flow rapidly increased as deadlines approached for share buybacks transferred from Renault to trust companies and massive bond redemptions.
Many might remember when the PBR temporarily reached 0.2, the lowest among TSE Prime Market listed companies.
Effissimo's large stake acquisition under these circumstances, combined with their existing 29.68% stake in Nissan Shatai, aimed to increase pressure to resolve parent-subsidiary listing issues. Furthermore, Oasis Management also announced large stake acquisitions following Effissimo's moves.
Nissan was essentially "a perfect target for activists."
Beyond poor performance, they faced a turning point between restructuring or sale, with corporate governance issues symbolized by the Carlos Ghosn incident, pressing bond redemption deadlines, and tight cash flow.
However, given Nissan's scale and technological capabilities, bankruptcy wasn't a simple option. With numerous employees, Nissan's bankruptcy would leave many jobless. Subcontractors would likely face chain bankruptcy. This would have a major negative impact on the entire Japanese economy.
Moreover, Nissan's technology could be an attractive acquisition target for many companies. Activist funds likely focused on this point in advancing their strategic stock acquisitions.
In fact, Taiwan's Foxconn showed strong interest in acquisition. For them, seeking entry into the automotive industry, Nissan's technological foundation must have been extremely appealing. However, the Japanese government was concerned about crucial domestic technology flowing overseas. As a result, they sought to resolve the situation by approaching Honda for a rescue acquisition.
Activist funds likely anticipated this development to some extent. Their strategy was clear:
"Secure negotiating power through large-scale acquisition of Nissan shares to advance favorable acquisition price negotiations with Honda."
Furthermore, they skillfully used Foxconn's presence as a rival to apply pressure, suggesting they "wouldn't hesitate to sell to other companies if terms weren't satisfactory," aimed at driving up the acquisition price.
Summary
We've looked at representative activist investment cases. Of course, there are many other important cases beyond those introduced here. For example, the Murakami Fund's acquisition of Nippon Broadcasting is known as a symbolic case that greatly influenced the history of activist investment in Japan.
2024 has seen particularly notable activation of activist activities, ranging from corporate acquisitions to hostile TOBs. Considering changes in market environment and regulations, even more active developments are expected in 2025.
It will be very interesting to continue closely observing activist trends!
From a career perspective, activist investing has also become a very attractive option. For details about career paths to activist funds, please refer to the article below!
▼【How to Join an Activist Fund?】Career Strategies at Effissimo, Elliott, Oasis and Others!