TCI Fails to Slay the Japan Inc. Dinosaur
"Unless you are willing to drench yourself in your work beyond the capacity of the average person, you are just not cut out for positions at the top."
J.C. Penney
former chairman, J.C. Penney
Recent comments from U.K. based hedge fund, The Children's Fund, in the Nikkei news media were marked by anger, scorn and regret - kind of like a teen's reaction to the outright rejection by the belle of the local high school.
The point of contention was JPower, a leading electricity utility in Japan. The Board of JPower apparently decided that it was not going to kowtow to pressure from TCI to up its dividend. Since TCI built up its stake in the firm it has failed to bring to Japan the same sort of investor activism that has made is successful in Europe. Reality bites and when it does it can hurt. In this case the pain could run into quite a few million Benjamins!
So where do they go now? And what is the future of investor activist tactics in Japan? The news is not good. TCI executives railed the decision of the Board and announced that it would recommend all foreigners to sell their equity holdings in Japan Inc. (which they have been doing anyway the last 2 years), and, that European regulators should not allow any Japanese corporation to take more than a 10% stake in any European companies - tit for tat retaliation - another school playground strategy!
The fact is, investor activism and M&A tactics in general have not taken off in Japan. The country remains deeply suspicious of anyone, let alone outsiders, telling them to focus on shareholder value. It is a generational issue. Old geezers never conducted business that way and are not likely to change in the short run.
As a result the best that a typical value-investor could achieve was to 1) coax senior management by enriching them personally with a "new strategy" 2) embarrassing senior management with public revelations about the activities of Board Members 3) "gang tackling" by taking equity in the company along with other friendly hedge funds.
However, in terms of responsible management practices Japan continues to rank near the bottom of most league tables ranking international markets. The legal system favors the incumbent management (however inefficient) and practices are opaque and critical of foreigners. The fact that there have been a number of illegal activities by so-called activist practitioners did not help to restore investor confidence in the system either. All of which is a shame.
At just the moment in history when radical change is needed within the industrial framework in order to tackle many serious issues it resorted to its Dinosaur Practices of YesterYear: obfusticate, hide, caojole, protect, screen and allow the status quo to remain just that. Ironically, what is needed is a shot in the arm.
The stock market recognizes this and has underperformed over the last few years in recognition of this. And it will continue to underperform. Until the very framework changes Japan will remain the short of choice among global hedge fund managers, unless they are looking to buy a car or exercise on a WII game. In the good ole days Japan Inc. offered innovative technological products, industrial best practices and cheap sources of capital. Not anymore, these have become commodities. Mahalo.
"Unless you are willing to drench yourself in your work beyond the capacity of the average person, you are just not cut out for positions at the top."
J.C. Penney
former chairman, J.C. Penney
Recent comments from U.K. based hedge fund, The Children's Fund, in the Nikkei news media were marked by anger, scorn and regret - kind of like a teen's reaction to the outright rejection by the belle of the local high school.
The point of contention was JPower, a leading electricity utility in Japan. The Board of JPower apparently decided that it was not going to kowtow to pressure from TCI to up its dividend. Since TCI built up its stake in the firm it has failed to bring to Japan the same sort of investor activism that has made is successful in Europe. Reality bites and when it does it can hurt. In this case the pain could run into quite a few million Benjamins!
So where do they go now? And what is the future of investor activist tactics in Japan? The news is not good. TCI executives railed the decision of the Board and announced that it would recommend all foreigners to sell their equity holdings in Japan Inc. (which they have been doing anyway the last 2 years), and, that European regulators should not allow any Japanese corporation to take more than a 10% stake in any European companies - tit for tat retaliation - another school playground strategy!
The fact is, investor activism and M&A tactics in general have not taken off in Japan. The country remains deeply suspicious of anyone, let alone outsiders, telling them to focus on shareholder value. It is a generational issue. Old geezers never conducted business that way and are not likely to change in the short run.
As a result the best that a typical value-investor could achieve was to 1) coax senior management by enriching them personally with a "new strategy" 2) embarrassing senior management with public revelations about the activities of Board Members 3) "gang tackling" by taking equity in the company along with other friendly hedge funds.
However, in terms of responsible management practices Japan continues to rank near the bottom of most league tables ranking international markets. The legal system favors the incumbent management (however inefficient) and practices are opaque and critical of foreigners. The fact that there have been a number of illegal activities by so-called activist practitioners did not help to restore investor confidence in the system either. All of which is a shame.
At just the moment in history when radical change is needed within the industrial framework in order to tackle many serious issues it resorted to its Dinosaur Practices of YesterYear: obfusticate, hide, caojole, protect, screen and allow the status quo to remain just that. Ironically, what is needed is a shot in the arm.
The stock market recognizes this and has underperformed over the last few years in recognition of this. And it will continue to underperform. Until the very framework changes Japan will remain the short of choice among global hedge fund managers, unless they are looking to buy a car or exercise on a WII game. In the good ole days Japan Inc. offered innovative technological products, industrial best practices and cheap sources of capital. Not anymore, these have become commodities. Mahalo.
posted by Franklin Scruggins | 6:23 AM
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