Activist pressure drives Japanese firms to end cross-shareholdings

Japanese companies are accelerating governance reforms, driven by activist pressure and the fear of being targeted, as they unwind cross-shareholdings that have linked firms for decades.

Major corporations, including Toyota Motor and Nintendo, have started selling off shares they hold in other companies. Nintendo recently announced a $1.9 billion sale, signaling a broader trend. In Japan, cross-shareholdings, where companies own stakes in one another, have long offered stable, supportive investors. But critics say the practice reduces transparency, complicates valuations, and shields management from shareholder oversight, News.Az reports, citing Reuters.

Regulators and the Tokyo Stock Exchange are pushing companies to reform. Those lagging in governance are increasingly likely to face activist campaigns. “Five years ago, Japanese companies would ignore activists. Today, they all seem to understand what they need to do,” said Jordan Cvetanovski, chief investment officer at Pella Funds.

Elliott Investment Management recently forced Toyota to improve its bid for Toyota Industries, highlighting the rising influence of activists. In response, Toyota plans to sell about $19 billion in shares held by banks and insurers—a move analysts say could prompt other firms to follow suit.

Other companies joining the trend include electronics manufacturer Ibiden and frozen food firm Nichirei. Kansai Electric Power, targeted by activists, is also considering selling shares in construction firm Kinden.

Experts say the shift is not solely driven by activists. “The fuse on the governance revolution was lit by Abe,” noted CLSA Securities strategist Nicholas Smith, referring to former Prime Minister Shinzo Abe. The current government under Prime Minister Sanae Takaichi is expected to continue pressuring firms to invest cash in wages and business growth.

Cross-shareholdings, while historically used as a defensive measure against takeovers, are becoming less viable. Yasuhiro Kikuchi of Mizuho Securities said, “Using stable shareholder structures as a shield…is becoming harder.” Companies must now balance short-term shareholder returns with medium- to long-term growth strategies, while activists help remove poor management and outdated practices.

News.Az 

By Aysel Mammadzada