Roula Khalaf, Editor of the FT, chooses her favorite stories in this weekly newsletter. Elliott Management is urging Japan’s largest property group, Mitsui Fudosan, to initiate a ¥1tn ($6.8bn) share buyback as the US activist fund focuses on the top end of the Tokyo stock market.
Elliott’s demands, presented to top management within the past month, include a request for the company to sell down its $3.6bn stake in Oriental Land, the company that operates Tokyo Disneyland, according to people close to the fund and Mitsui Fudosan. This move by Elliott is part of the increasing pressure on Japanese companies to enhance their market valuations, improve their corporate governance standards and boost their returns on equity.
This mounting pressure has been building up over the past 18 months as the Tokyo Stock Exchange has been urging companies to outline their plans to enhance their corporate value, a move designed to bring attention to those that fail to do so. Furthermore, domestic institutional investors have become more assertive in demanding higher returns. Market strategists have noticed a significant response, contributing to the benchmark Nikkei 225 reaching a 34-year high in January. Buybacks by Japanese companies in 2023 hit a record ¥9.6tn, with over 1,000 companies announcing them for the second consecutive year, according to a recent calculation by the Nikkei newspaper.
Elliott’s move, its fourth major public engagement in the Japanese stock market after interactions with Toshiba, SoftBank, and Dai Nippon Printing, is targeting a company with a global property empire, including iconic buildings that shape the skyline of central Tokyo. Mitsui Fudosan’s three “Midtown” projects dominate the Hibiya, Nogizaka, and Yaesu districts of central Tokyo. It also owns the Tokyo Dome stadium and is leading a redevelopment of the vast area where the Tsukiji fish market once stood.
According to people familiar with the situation, Elliott’s demand for the buyback follows a secretive, year-long stake-building process by the US fund, making it one of Mitsui Fudosan’s top five shareholders. Nomura Asset Management, Vanguard, and BlackRock are all major shareholders, and Elliott’s stake is at least 2.5 per cent. The pressure for the significant buyback is part of a broader criticism of the company’s governance and the fact that its market capitalization represents a more than 33 per cent discount to the market value of the property it owns.
Even though Mitsui Fudosan is the largest Japanese property group by value, its return on equity is the lowest among peers such as Mitsubishi Estate and Sumitomo Realty, at 6.91 per cent. Elliott Management declined to comment, and Mitsui Fudosan did not immediately respond to a request for comment.
