Japan’s unique management system for major companies is called keiretsu, which Investopedia explains is “steeped in tradition and relationships…. A keiretsu is an interdependent group of companies, each with its own banking partner, manufacturers, distributors, and supply chain partners.”
It’s true Japan is undergoing management developments. ClearBridge reported last September changes such as greater stock-market transparency are “creating compelling opportunities for long-term value investors.” That’s ideal for such non-Japanese investors as Warren Buffett, the king of value investors.
Indeed, in his Feb. 22 letter to shareholders, the Oracle of Omaha emphasized Berkshire-Hathaway’s increase in investments in Japanese companies because they follow similar strategies: “It’s been almost six years since Berkshire began purchasing shares in five Japanese companies that very successfully operate in a manner somewhat similar to Berkshire itself. … Our holdings of the five are for the very long term, and we are committed to supporting their boards of directors.”
The five companies are ITOCHU, Marubeni, Mitsubishi, Mitsui and Sumitomo. Each, Buffett said, like Berkshire “owns interests in a vast array of businesses, many based in Japan but others that operate throughout the world.”
Despite Buffett’s example of how properly to invest in Japan, activists still are trying their aggressive U.S. tactics in the Land of the Rising Sun. On Feb. 25, the Financial Times headlined, “Activist fund takes aim at one of Japan’s biggest pharma groups.” It reported San Francisco-based Farallon Capital Management “has built a more than 3% position in Astellas” and is demanding cost savings and realignment.
CNN reported March 6, “7-Eleven’s Japanese owner appoints American CEO to fend off $47 billion takeover bid” from Canadian Circle-K operator Alimentation Couche-Tard.
And last November the FT reported Elliott Management’s 5% stake in Tokyo Gas “seeks to push the Japanese utility to focus on its energy business and scale back a property portfolio that the activist investor estimates could be worth as much as $9 billion.”
But there are problems in this clash of cultures. Elliott, headed by Paul Singer, now is part of a controversy involving Washington, D.C. strategist Justin Peterson. The Wall Street Journal reported March 3, at a Nov. 2015 breakfast with Israeli private investigator Amit Forlit, Peterson “launched a yearslong campaign that federal prosecutors now say crossed a line.”
In an email, Peterson told Forlit “to operationalize the research on the bad guys.” According to prosecutors, the Journal explained, that led to “hacking into the email accounts of Exxon’s enemies.” The paper noted Peterson’s alleged role is detailed in court documents, but “Peterson hasn’t been accused of wrongdoing or charged in connection with the alleged hacking.”
And, “Peterson and his firm, DCI Group, did work on behalf of U.S. hedge fund Elliott Management…. in its yearslong battle against Argentina over defaulted debt. DCI helped by developing a sophisticated media and lobbying blitz portraying the Argentine government as a sovereign deadbeat.”
More, “The documents are part of a continuing U.S. criminal case” against Forlit, “who is charged with conspiracy to commit wire fraud and computer hacking. Forlit was arrested in London last year and the U.S. is currently seeking his extradition.”
This kind of aggressive and legally dubious intelligence gathering is just what makes the more conservative, keiretsu-focused Japanese resist Elliott-style aggressions. Indeed, Elliott has had dubious success with other attacks. A year ago it invested in Sumitomo – but only after Buffett’s investment tripled the stock. It’s just piggybacking on Berkshire’s success.
After attacks by Elliott and others, in 2023 Toshiba went private after “a $14 billion tender offer from private equity firm Japan Industrial Partners,” reported CNN. “Activist shareholders and Toshiba were stuck with each other for years,” said analyst Travis Lundy of Quiddity Advisors. “This takeover allows both sides to escape their mutual bearhug.” And it shows how, even when Elliott initially succeeds, it meets resistance, because Japanese firms prefer internal reforms over activist-imposed changes.
An example of Japanese firms organically working to prevent takeovers is Dentsu Group, Japan’s largest advertising agency, which I ironically discovered through my research on sports entertainment investment opportunities (the company partners with a lot of professional sports leagues). On Feb. 14, Dentsu announced its new Management Plan 2025-2027, including “the reevaluation of underperforming businesses globally as well as by rebuilding the business foundation.” And, “Continue disposal of non-operating assets, such as strategic shareholdings.”
It’s clear activist investors are not a good fit for Japan’s top companies, with their significantly different culture. It’s Berkshire-Hathaway-style patient investors, respectful of Japan’s unique business culture, who win the day. Indeed, Elliott’s shadowing of Berkshire’s Sumitomo investment implicitly shows the Buffett Way is the right way.
Like a Sumo wrestler firmly planted in the ring, Japanese firms are turning out to be hard to budge.
Tim Biggam spent 13 years as Chief Options Strategist at Man Securities in Chicago, 4 years as Lead Options Strategist at ThinkorSwim and 3 years as a Market Maker for First Options in Chicago.
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