Investing: A Tokyo stock hop

Just a few years ago, more than 60 percent of the 1,500 shares listed on the Tokyo Stock Exchange were trading below their book value, with some shares trading below what all of the company’s cash reserves were worth.

That is changing fast. Since early February the shares of a fistful of formerly sleepy Japanese companies have jumped, in some cases by more than 70 percent, and fund managers say more are likely to follow.

The recent winners are a diverse bunch. Shares of Toyota Industries, a maker of forklifts that is affiliated with Toyota Motor, have risen 28 percent since Feb. 1; Tokyo Theatres, an operator of cinemas that show independent films, is up 77 percent; Fuji Television Network, owner of a leading Japanese channel, is up almost 11 percent.

The reasons for the price spikes are also diverse, ranging from underlying assets to dividend increases. But market watchers are unanimous about the catalyst: the ongoing takeover battle involving Fuji Television, Nippon Broadcasting System, and Livedoor, a saucy Internet company.

Livedoor, which is led by Takefumi Horie, 32, announced in February that it had acquired 35 percent of Nippon Broadcasting and intended to challenge a takeover bid for the radio company by Fuji. The reason for all the interest: Nippon Broadcasting’s low, low share price, which had been flirting with book value for years even though the company boasts such crown-jewel assets as a 22 percent stake in Fuji, the nation’s biggest TV network, and Pony Canyon, a successful record label. Livedoor increased its stake in Nippon Broadcasting to over 50 percent, then tried to take over Fuji TV, using the Nippon Broadcasting stake as a toehold. Fuji TV thwarted the move by allying itself with Softbank Investments, which vowed to defend the broadcaster.

The battle is far from over. But Horie’s buccaneer moves sent a clear message into boardrooms across Japan: If you don’t pay attention to your stock price, someone might play a nasty trick on you.

Analysts and fund managers are now saying that investors might find more long-languishing share prices soar as corporate managers wake up to this new reality.

“Corporations have to pay attention to shareholder demands,” said Norihiro Fujito, a strategist for Mitsubishi Securities in Tokyo.

The new tension in the market is sending investors scrambling to buy shares of companies they think might be the next target.

Junichi Misawa, director of equity investments at Sumitomo Trust Bank Asset Management, said that Tokyo share prices these days tended not to dip much below book value “even when business results are poor.” That is partly because investors are starting to reason that buyout firms might enter the picture, bidding the prices up, he said.

Some Japanese companies are responding with defensive measures. Sharply lifting dividend payouts, which are quite low in Japan, has become a common reaction against aggressive shareholder moves: Two small Japanese chemical companies, Yushiro Chemical and Sotoh, both raised their dividends – in Yushiro’s case, to ¥200 from ¥8 – to thwart hostile takeover bids from an American investment fund, Steel Partners Japan Strategic Fund (Offshore), in December 2003. The moves sent the shares of the chemical companies soaring, more than doubling in a matter of days. “A dividend hike has become an established defense measure,” said Muneyuki Tsuji, a fund manager at Japan Investment Trust Management in Tokyo.

Sometimes a dividend increase can serve a dual purpose. Sumitomo Warehouse, a warehouse operator, immediately raised its dividend late last year after an investment fund led by Yoshiaki Murakami, a shareholder activist, acquired 15 percent of its shares. The move was both a takeover defense and a way to appease a demand of Murakami’s fund. “There is a movement on the part of the companies to redress the very low payout ratio,” Fujito said.

Underlying assets are also propping up share prices. Tokyo Theatres boasts a portfolio of real estate in prime Tokyo locations, like Shinjuku, Ginza and Ikebukuro – where a luxury boutique could be more profitable than “movie theatres showing indie films that draw 10 viewers or something,” Fujito said. As Tokyo land prices began to firm recently, Tokyo Theatres shares started to move. Shares of Yomiuri Land and Tokyokeiba, both of which own leisure facilities and the real estate underneath them, have also risen smartly since February.

By Miki Tanikawa

Source: International Herald Tribune

Photo credit: *_* via VisualHunt / CC BY