With much of the world focused on the US election, another world leader has recently taken office with relatively little attention, but with promises that could be significant for investors.
The next frontier
While the public data clearly paints a picture of growing agitation, it is harder to assess the success rate of discussions which result in amicable resolutions, in-keeping with Japanese culture.
The data also shows that although demands remain focused on balance sheet issues, which are perhaps easier to resolve privately, since 2017 there has been growing appetite to challenge companies on their business and M&A strategy.
SKAGEN M² recently initiated a position in Hewia Real Estate which owns and operates over 50 offices in major cities across Japan, primarily in Tokyo where it is landlord to the Tokyo Stock Exchange and redeveloping the financial district.
The company has significant unrealised value within its property portfolio - reflected in a current share price discount of around 40% - and what we consider to be unnecessary cross-shareholdings on its balance sheet.
Heiwa also has a 'poison pill' takeover defence which allows it to issue warrants that would dilute the ownership stake of a potential acquirer.
The provision also lets the company establish an 'independence committee' of internal and outside members to review the appropriateness of any bids.
Such shareholder unfriendly mechanisms were a common feature of Japan's corporate landscape for many years, largely used alongside cross-shareholdings to deter overseas predators, but have declined dramatically in the wake of Abe's corporate governance reforms.
Heiwa's poison pill adoption and subsequent renewal, which the company claims is necessary to protect it as it works to redevelop the area around the stock exchange, has received dwindling shareholder support over the past two years and was almost removed at this year's AGM.
Since then, Simplex Asset Management has become Heiwa's largest shareholder and currently owns 12.2% of the company.
It seems probable that the Japanese hedge fund's target is to remove the defence mechanism to smooth a potential takeover of the company, a move that would likely find support among the overseas investors who own nearly 40% of Heiwa's shares.
Both Heiwa and Keihanshin illustrate the corporate governance transition currently underway in Japan, with activist investors increasingly embedded in the shareholder registers of its companies.
Given Prime Minister Suga's promise to continue Abenomics, and a belief he is particularly committed to structural reform, the evolution may even accelerate.
The two companies also contain significant value waiting to be unlocked, either by activists and agitators who are gaining growing support from mainstream investors, or the companies themselves who increasingly recognise the importance of maximising returns for minority shareholders.
Michael Gobitschek is a portfolio manager at SKAGEN M²