More Japanese firms opt to go private as activist clout grows

TOKYO – A growing number of publicly listed companies in Japan are going private, as regulatory shifts clear the way for activist investors to step up scrutiny and demand changes.

A total of 135 companies delisted from the country’s stock exchanges in 2022, almost triple what it was a decade ago, according to Mr Jason Thomas, head of Carlyle Group’s global research and investment strategy.

Drawn by the promise of fat returns on stocks trading at discounts, activist shareholders are flocking to the world’s third-largest equity market.

Reforms in corporate governance guidelines and regulators’ increasing emphasis on equity returns and profitability are further spurring a level of activism that is driving a surge in privatisations, Mr Thomas said.

Japan is on pace to more than double the number of shareholder proposals that companies field from activists in 2023, with 67 proposals submitted as at June, compared with a record 58 in all of 2022, according to IR Japan Holdings. In 2014, publicly traded companies received four proposals. 

Management teams often prefer to restructure their firms as privately held entities with partners of their choosing and are wary of changes pushed through by activist shareholders, Mr Thomas said. The number of delistings may grow “substantially from here”, he said.

Prominent delistings on the horizon include Toshiba, whose long-delayed US$15 billion (S$20.2 billion) buyout began on Tuesday, as well as semiconductor materials maker JSR, which is slated for a US$6.3 billion take-private bid.

Both are linchpins of Japan’s tech sector, and their privatisations signal how even some of the Tokyo Stock Exchange’s long-time members are finding the drawbacks of a public listing outweighing the considerable advantages.

Toshiba, which has activist representatives on its board, is delisting following months-long delays in a bidding process that came about only after multiple fracas with shareholders. 

Executives have denied that activism has anything to do with the decision to go private.

JSR chief executive Eric Johnson said in June that the semiconductor material maker’s decision to agree to a US$6.3 billion buyout by government-backed Japan Investment was to drive scale and growth and catalyse change in the country’s materials sector. He denied the board sought to avoid dealing with activist shareholders’ demands.

Mr Thomas of Carlyle said the surge in privatisations of publicly traded companies is part of a global move worldwide that started in the United States and other developed-market economies as long as two decades ago.

The delistings in Japan reflect a shift towards more efficient corporate governance and a focus on increasing capital productivity, he said. In that sense, “this is indeed a positive trend”, he said.

The temptation remains for management to delist to escape increased investor scrutiny and accountability, however. Critics are also wary of management buyouts and exclusively negotiated acquisitions, because of the risk that they might ignore minority shareholders’ interests. 

“A takeover-bid price that’s 30 per cent above the most recent share price can’t be seen fair if someone else is willing to pay 60 per cent more,” said RMB Capital’s Masakazu Hosomizu. “You need pricing transparency by having multiple bidders compete.” BLOOMBERG