Mar 22, 2023
Nintendo Family Office Sees Success in Engineering Firm Takeover
(Bloomberg) -- The family office linked to Nintendo Co Ltd.’s founder says it has a good chance in its battle for control of a 93-year-old Japanese construction company.
The saga pits Yamauchi No. 10 Family Office (YFO), which manages about 200 billion yen ($1.5 billion) in assets, against Toyo Construction Co Ltd., a firm known for its marine engineering operations. YFO says it has accumulated 27% of Toyo Construction’s shares, mostly in the market.
“If we can create business innovation through our investment in Toyo Construction and build technologies we can sell to the world, that’s good for industries in Japan as well,” Hirowaka Murakami, YFO’s chief investment officer, said in an interview. Though Toyo has balked, he said YFO’s bid has the support of a number of institutional investors.
The family office launched a tender offer for Toyo at 1,000 yen per share last spring. That trumped a 770 yen bid from peer Infroneer Holdings Inc., which Toyo management has supported. Shares of Toyo briefly surged to near YFO’s offer but have since fallen back.
Hostile takeovers are rare in Japan, though they have picked up in recent years amid a rise in shareholder activism. In the construction sector, Maeda Corp. completed a hostile bid for Maeda Road Construction Co. in 2020, ending a bitter battle between two former allies.
YFO manages assets for descendants of Nintendo’s founder Fusajiro Yamauchi and his great-grandson Hiroshi, who built the company into a global video-game giant. The family office in 2021 backed efforts by Japan Systems Co. executives against a private equity takeover.
The firm, which earlier this year merged with US-based activist fund Taiyo Pacific Partners, argues Toyo Construction is capable of higher growth and is well placed to tap offshore wind-power construction demand.
“This company has steady cash flow of about 10 billion yen every year,” said Murakami, who is no relation to famed shareholder activist Yoshiaki Murakami. “They should spend some of that money to boost growth for the future.”
Toyo Construction’s management, which has been resisting YFO’s proposals, on Thursday announced a five-year business plan, including a promise to double its dividend payout ratio from the next financial year starting in April, and boost return-on-equity to 12% from around 8%.
Their confrontation heated up in January, when YFO called for the ouster of Toyo’s president and two other board members at its annual general meeting of shareholders in June. YFO has called for an extraordinary shareholder meeting to be held before the AGM, but the company rebuffed this.
Toyo in February said it formed a special committee to consider YFO’s offer, some eight months after the first approach was made. The family office says the panel is “merely governance-friendly window dressing” for rejecting the bid, but still believes it can succeed.
“The smokescreen of a special committee suggests the board is feeling the heat,” analyst Arun George wrote in a Feb. 17 note on Smartkarma. “The board’s anxious move shows that protracted conflict is shifting in favor of YFO.”
(Updates with Toyo’s business plan in the ninth paragraph)
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