(Bloomberg) -- Deal makers and activist investors injected drama into the Japanese equity market on Wednesday, triggering sharp rallies in shares of Seven & i Holdings Co., Tokyo Gas Co., Kobayashi Pharmaceutical Co. and Kadokawa Corp.
The gains, which came in the face of losses in the benchmark Topix, underscore just how frenetic trading has become on the Tokyo bourse this year. Within a month of setting a record high in July, the Topix tumbled into a bear market, then quickly bounced back 20% as local and global buyers returned in force.
Wednesday’s action saw convenience store operator Seven & i leap as much as 11% on a report that the founding family is looking to complete a deal to take the company private by the end of its fiscal year in February. Tokyo Gas surged 15% at one point after Elliott Investment Management said it now held a major stake in the company and may make “important proposals” to the utility.
The move by Elliott Investment is part of an uptick in purchases by activist investors who’ve got traction in taking stakes in companies and agitating for higher returns for shareholders. Kobayashi Pharma jumped as much as 6.4% after Oasis Management Co. increased its stake.
Oasis is also reported to have established a minority stake in embattled carmaker Nissan Motor Co., in which Singapore-based activist fund Effissimo Capital Management Pte has also invested. The automaker’s stock, which fell 2% Wednesday, jumped 13% on Nov. 12 after Effissimo’s stake came to light.
“This is a new characteristic for Japan’s market,” said Tomo Kinoshita, global market strategist at Invesco Asset Management Japan. “Rather than focusing on big exporters, who are at risk if the yen strengthens, more investors are becoming interested in individual stock moves, based on buyout proposals or activism.”
Deal-making news also boosted Kadokawa’s shares Wednesday, with Sony Group Corp. in talks to acquire the publisher. Kadokawa’s stock climbed as much as 19%, extending gains from Tuesday. Sony and Kadokawa are among the biggest shareholders in FromSoftware Inc., the developer behind hit games including Elden Ring.
A special-purpose company established by Seven & i’s founding family and other parties is working on a plan to conduct a takeover bid for the entire firm, and is looking to raise more than ¥8 trillion ($51.7 billion) from megabanks and US financial institutions, according to Japanese broadcaster NHK.
While the price is still unknown, investors are taking the news positively as the report made a managed buyout seem a real possibility, said Naoki Fujiwara, a senior fund manager at Shinkin Asset Management Co. “Shares are probably rising on expectations that the founding family is serious about this.”
Seven & i is considering a management buyout to take itself private with funding from banks, Itochu Corp. and the founding Ito family in a transaction that could be worth around ¥9 trillion, people with knowledge of the matter said last week. Any deal could be presented as an option for shareholders in the event that Alimentation Couche-Tard Inc. becomes more aggressive with its pursuit of Seven & i and makes a tender offer, the people said.
Elliott Investment has acquired 5.03% of Tokyo Gas, it said in a filing to Japan’s finance ministry on Tuesday. The activist investor believes the company should sell properties and real estate projects, including the Park Hyatt Tokyo hotel, that could be worth as much as ¥1.5 trillion combined, according to a person familiar with the matter.
Activist funds have been campaigning to unlock hidden value in Japanese companies, many of which are trading below book value.
“The key opportunity in Japan is price discovery of undervalued assets, with activists and private market participants being the pre-catalysts for price resets,” said Damian Thong, head of Japan equity research at Macquarie Capital Securities.
Elliott has built stakes in Sumitomo Corp., SoftBank Group Corp. and real estate developer Mitsui Fudosan Co. this year, but this is the first time it has bought more than 5% of one of the country’s companies since 2019.
--With assistance from Shoko Oda and Hideyuki Sano.
(Adds details on Kadokawa.)
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