Japan's Most Famous Activist Investor Steps Up Takeover Battle With Carlyle

Japan’s most famous activist investor jumped back into the spotlight in 2021, taking on a global private equity giant over one company and scoring a lucrative exit at another.

Yoshiaki Murakami has been locked in a battle with Carlyle Group Inc. over energy and environmental firm Japan Asia Group Ltd., pushing the investing behemoth to double its takeover price and then trumping that offer. Separately, he registered a win at Hoosiers Holdings when the real estate company agreed to buy back his large stake at a higher price than he paid.

Japan's Most Famous Activist Investor Steps Up Takeover Battle With Carlyle

Analysts say Murakami may have a controversial past, but his campaigns generate returns for other stock owners. Murakami, a former bureaucrat who quit Japan’s trade ministry in 1999 to start his own eponymous fund, was an early champion of shareholder rights in the country before he was convicted for insider trading in 2007. He was sentenced to two years in prison, which was suspended on appeal.

“Despite his infamy, Murakami creates social benefit,” said Justin Tang, head of Asian research at United First Partners in Singapore.

The takeover tussle at Japan Asia Group took another twist last week when City Index Eleventh, a Murakami-linked fund, said it was launching a tender offer for the company at 1,210 yen a share, 10 yen higher than the price previously offered by Carlyle.

Carlyle had doubled its bid in late January, to 1,200 yen a share from 600 yen, after City Index Eleventh said Carlyle’s initial price was “unfairly cheap” and it was planning to launch a rival tender offer. Carlyle’s proposed investment is to support a management buyout by Tetsuo Yamashita, Japan Asia Group’s chairman and chief executive officer.

Motivation Unclear

“He may have done this to try to force an overbid,” Travis Lundy, a special-situations analyst who publishes on Smartkarma, said of the counter offer. Or he may assume “that neither Carlyle nor he will actually succeed, but that later events will provide more value,” he said. “It’s tough to know what his drivers are.”

Japan Asia Group said in a statement Wednesday that Carlyle’s tender offer had been unsuccessful. Japan Asia Group also said it was refraining from giving an opinion on Citi Index Eleventh’s offer. A representative for Murakami didn’t respond to emailed requests for an interview. Carlyle declined to comment.

Tang of United First Partners said Murakami’s offer may have been intended to “send a message” that acquisitions need to be done at a fair price. He said the offer probably won’t succeed, but whatever happens, his intervention has boosted the value of the stock. City Index Eleventh’s cost basis per share is 603 yen, according to data compiled by Bloomberg.

“I am sure he is well in the money,” Tang said. “He is helping stocks rerate to their real market value.”

Japan Asia Group shares closed Wednesday at 1,270 yen, about 5% higher than City Index Eleventh’s offer, suggesting investors expect further developments.

While time will tell how the situation ends at Japan Asia Group, Murakami’s exit at Hoosiers has already been decided.

Share Buyback

The company said on Jan. 28 that it would buy back 21.64 million shares at 684 yen apiece in a tender offer after holding talks with City Index Eleventh. Murakami-linked shareholders, including City Index Eleventh, agreed to tender all their 21.57 million shares. Hoosiers plans to cancel most of the shares.

While the price was lower than the stock’s closing value that day, it would still be a gain for City Index Eleventh. Its average purchase price for the stock is 577 yen, according to data compiled by Bloomberg. A buyback price of 684 yen is about 19% higher.

A representative for Hoosiers said the tender offer is being done at a discount and will increase shareholder value for investors who continue to hold the stock.

To be sure, one observer says Murakami’s strategy of building stakes in companies and seeking exits through buybacks may not be good for the firms involved, or their other stock owners.

Depleting Resources

“Some companies end up depleting their resources for growth if they cough up their equity capital,” said Yo Ota, a partner at law firm Nishimura & Asahi in Tokyo who has helped firms defend themselves against Murakami in the past. “And that may ignore the interests of other shareholders expecting medium to long-term growth.”

Murakami reentered the fray almost a decade after the insider-trading scandal forced him to close his multibillion-dollar fund and has become increasingly active. Last year, for example, he sought to acquire a major stake in Toshiba Machine Co., now called Shibaura Machine Co. That time, the move was thwarted after the company received shareholder approval to adopt a poison pill.

But for United First Partners’ Tang, most of the time the investor creates wealth for other shareholders.

“Murakami is a Japanese Robin Hood,” he said. And “he is not a dumb Robin Hood.”

©2021 Bloomberg L.P.

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