News from our advisers
Our principal specialist Japan adviser – a mid and small cap value manager – wrote at the end of June:
At annual general meetings, the majority of which happen in June, most resolutions introducing “poison pills” were passed in spite of opposition from such advisory bodies as Institutional Shareholder Services. Similarly, requests from largely activist shareholders to increase dividends substantially also failed. However, the plan to expand the shares in issue at Fujifilm to facilitate the potential issue of warrants was voted out by 80% of shareholders.
This adviser’s USD performance numbers since their fund’s inception in 4/8/99, acquired in the teeth of a horrible Japanese bear market are:
The situation at Bull-Dog Sauce continues to develop. Steel Partners (private equity firm in NYC) had raised their offer price from Y1584 to Y1700 and extended the offer period. The poison pill was passed by shareholders and the Tokyo Court subsequently upheld the legitimacy of its introduction, arguing the action was approved by shareholders and not to the detriment of any one shareholder. Steel Partners will receive cash from exercising their warrants rather than receiving shares so their bid fails due to dilution. Nevertheless, they walk away with quite a comfortable second prize.
It is interesting to note that KK DaVinci has raised its bid for TOC to Y1308. Bearing in mind this company traded around Y600 only six months ago, it perhaps demonstrates the interesting real value of often overlooked little companies. Buybacks also continue with Kuraray, as part of its target to return 70% of net profit to shareholders, intending to purchase up to Y30bn worth of its equity. Sekisui House and Sekisui Chemical have unravelled a considerable part of their cross-shareholding.
Regardless of the outcome of the Upper House elections we hope that Japanese interest rates will start to rise thereafter. The Japanese currency is at very low levels and the stockmarket remains, in our view, inexpensive but we do need local sentiment to turn and capital outflows to reduce.
GTI comment: We are not encouraged by our Adviser’s comments about Poison Pills. Change in corporate Japan is absolutely critical for our Restructuring Japan theme to play out. GLOBAL THEMES Underperforming management should be shown the door. We therefore have this investment under review. We recently saw the Adviser in Zurich. He was as confident as ever in the valuation metrics of the portfolio. We see his point. We are slightly overweight in this theme, looking to increase, but won’t do so until this corporate change issue is resolved.
