Activist fund Palliser Capital has taken a significant stake in Japanese factory automation firm SMC Corp. The London-based fund has proposed a $3.8 billion share buyback for SMC, a move aimed at addressing what Palliser views as the company's undervaluation.
SMC, which manufactures machinery critical for chipmaking, is believed by Palliser to be well-positioned to optimize its capacity utilization amid strengthening semiconductor demand. However, the fund asserts that the company's current market valuation does not reflect its strong underlying business fundamentals.
The activist investor suggests SMC has the capacity for a 600 billion yen ($3.8 billion) buyback over the next two years, alongside maintaining a consistent dividend payout ratio of at least 40 percent.
Shares in SMC have reportedly underperformed its industry peers over the past five years. Palliser aims to leverage ongoing corporate governance reforms in Japan, which are pressuring companies to improve cash utilization and return capital to shareholders.
Palliser Capital has a history of activism, with previous investments in companies like Ajinomoto and Toto.