Japanese companies are rapidly dismantling long-standing cross-shareholdings, a practice where firms own stakes in each other, under increasing pressure from activist investors. Major corporations like Toyota Motor and Nintendo are divesting these holdings, which historically provided stable shareholder support but critics argue obscured valuations and insulated management.
The shift is attributed to a growing recognition among companies that avoiding governance reforms risks activist targeting. Analysts note a significant change in market mindset, with a record number of activist campaigns last year prompting this acceleration. Elliott Investment Management's successful intervention with Toyota Industries highlights the impact of these campaigns, pushing for greater transparency and fairness for minority shareholders.
Toyota plans to sell approximately $19 billion in shares, a move expected to encourage other firms to follow suit. Nicholas Benes, founder of the Board Director Training Institute of Japan, commented that companies targeted by activists are now motivated to improve their governance. The unwinding of cross-shareholdings is gaining momentum, with firms like Ibiden and Nichirei also announcing share sales. Elliott is reportedly also targeting Kansai Electric Power.
While activists are a catalyst, strategist Nicholas Smith of CLSA Securities credits former Prime Minister Shinzo Abe for initiating the governance reform movement. The current government is expected to continue pushing for companies to invest cash piles into wage hikes and business expansion.
Nintendo recently announced the sale of $1.9 billion in shares held by banks, alongside a stock buy-back program. Kyoto Financial, a long-term shareholder in Nintendo, is accelerating its policy to cut cross-shareholdings. This strategic shift aims to improve shareholder returns while ensuring focus on long-term growth, with activists playing a role in removing inefficient management and practices.