(Bloomberg) -- A fund investing in Japanese companies that are expected to be in the crosshairs of takeover bids will launch on Friday in a reflection of the impact of the country’s corporate governance reforms.
Fivestar Asset Management Co. will start an equity investment trust that invests in firms that may be taken over by their parent or other companies due to the dissolution of parent-subsidiary listings.
Japan has already seen 24 takeover bids, or TOBs, so far in 2025, according to data compiled by Bloomberg as of Feb. 25. If that pace is sustained they may exceed 100 this year for the first time ever. In 2024, there were already 94 such deals, the most since at least 1998.
The new fund nicknamed ‘TOB Hunter,’ comes in the wake of a Tokyo Stock Exchange report early this month to address investor concerns that such listings put minority shareholders at a disadvantage. The bourse called for a reexamination of parent-subsidiary listings, as well as strengthening information disclosure and dialog with investors, which may lead to more delistings.
“The number of TOBs will continue to increase due to corporate governance reforms, selection and concentration of businesses, management buyouts, and hostile TOBs,” said Masamitsu Ohki, chief investment officer at Fivestar.
Even following a huge drive by the stock exchange for companies to improve value, return on equity on Topix firms is forecast at 8.8 times this year, well below that of the US and Europe. Investors are shifting their focus from cross-shareholdings, which are rapidly being eliminated, to more drastic group-wide reforms.
Companies that have delisted recently include Fuji Electric Engineering & Construction Co. and HouseCom Corp., while some ongoing deals are Paloma Reem Holdings’ TOB against Fujitsu General Ltd. and housebuilder Open House Group’s tender offer for Pressance Corp.
Activist Push
Funds targeting takeovers may face risks if hostile takeover bids increase and management and existing shareholders harden their attitudes, or if more TOBs and MBOs that underestimate corporate value don’t go through. This month, the takeover of Osaka Yuka Industry Ltd. by industrial waste treatment company Daiseki Co. failed to reach the minimum number of shares to be bought.
Nobuhiko Kuramochi, vice president of investment adviser Parasol Co., said he’s concerned an increase in activist-driven TOBs to restructure subsidiaries that don’t lead to an inherent increase in corporate value will meet opposition from the companies.
Even so, “it is difficult for individuals to select stocks focusing on the parent-subsidiary listing issue, so the idea of taking advantage of the policy in the form of a fund is a good one,” Kuramochi said.
