Elliott asks to buy Sumitomo Realty stake from corporate holders
Firms with high percentages of such holdings are often targeted by activist investors
[TOKYO] Elliott Investment Management has approached several Japanese companies about buying their shares in Sumitomo Realty & Development, according to sources familiar with the matter, as the investment firm seeks to ramp up pressure on the real estate developer to boost value.
The US activist investor has sent letters in recent months to companies that have so-called cross-shareholdings with Sumitomo Realty, offering to buy their stakes in block trades at around market price, the sources said, asking not to be identified because the matter is private.
The companies Elliott approached together hold no more than 5 per cent of Sumitomo Realty shares, and the firm has held direct talks with some of them, the sources added. It’s not known if any have resulted in transactions or what the status of the discussions is now. Elliott held more than 3 per cent of Sumitomo Realty as at June.
It’s common in Japan for publicly traded companies to hold stakes in each other, partly to cement business ties. Some of the most prominent cross-shareholders with Sumitomo Realty include construction-related firms Obayashi, Shimizu and Infroneer Holdings, though it’s not clear which enterprises Elliott contacted.
Representatives for Elliott and Sumitomo Realty declined to comment. Obayashi, Shimizu and Infroneer did not immediately respond to requests for comment.
Companies in Japan have faced pressure to cut cross-shareholdings as part of corporate governance reforms. The practice has been criticised by investors for helping companies resist outside or minority shareholder influence, and as an inefficient use of capital. Firms with high percentages of such holdings are often targeted by activist investors.
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If some cross-shareholdings are sold to Elliott, it would reduce the stakes of holders that are inclined to side with Sumitomo Realty and give the investor more clout to vote against management in future shareholder meetings, one of the sources said. The person added that if Elliott purchases the cross-shareholders’ stakes in Sumitomo Realty, the developer could potentially sell off the reciprocal shares in those counterparties, which would unlock capital.
In August, Sumitomo Realty said that it planned 200 billion yen (S$1.7 billion) in asset sales, and aimed to divest its 400 billion yen in cross-shareholdings over the next 10 years. Elliott said in a public statement later that the plan lacked “ambition and urgency”, and the time frame was “far too long”.
Bloomberg News first reported in March that Elliott had built up a significant stake in Sumitomo Realty. In a public letter in June, the investment firm called for the company to boost share buybacks, sell off older real estate holdings and unwind its cross-shareholdings in other companies. Elliott said in the letter that Sumitomo Realty is worth at least 8,000 yen a share. The stock closed at 6,873 yen in Tokyo on Monday.
Activist investing has been on the rise in Japan as the corporate governance reforms gain momentum. Investors started a record 146 campaigns in the country last year, more than twice the number four years earlier and second only to the US, according to data compiled by Bloomberg. BLOOMBERG
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