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Elliott Management has become a top-three shareholder of Kansai Electric Power, Japan’s second-largest utility and a major nuclear power operator, in a sign that activist investors in the country feel emboldened to take positions in sectors considered sensitive.
The New York-based activist fund now owns between 4 and 5 per cent of the company, according to people familiar with the stake. That would make Elliott a top-three shareholder, based on share data from Kansai Electric.
Elliott is pushing the company to increase dividends and share buybacks by selling ¥150bn ($1bn) a year of non-core assets, according to the people.
They said the fund believed Kansai Electric, which has a market capitalisation of ¥2.4tn, was sitting on more than ¥2tn of non-core assets, including a large stake in a construction company and more than ¥1tn in property, according to Elliott’s valuations.
Japan is in the middle of a corporate governance reform push backed by politicians and regulators. Shareholder demands for better returns and greater capital efficiency have put companies under increasing pressure to justify their non-core businesses and assets.
Goldman Sachs estimated last year that non-real estate companies held almost half of ¥26tn in unrealised property gains reported by Japanese groups in the top tier of the Tokyo Stock Exchange in 2023.
While activists have targeted industrial sectors such as pharmaceuticals and car parts, Elliott’s stake represents its first foray into Japan’s nuclear power sector, considered sensitive because of the country’s need to build up its energy independence.
The people familiar with Elliott’s thinking said the fund believed Kansai Electric — which operates nuclear reactors as well as thermal and renewable power plants across an industrial hub that includes Kyoto and Osaka — could improve its operations and margins by raising prices for some larger corporate customers, while using its low-cost nuclear power to attract investment to the region.
The company, which made ¥420.4bn in profit last fiscal year, is already part of a joint venture with CyrusOne to supply power to a data centre being built in the Kansai region.
The people also suggested that Kansai Electric could consider spinning off its grid and transmission subsidiaries, where the government sets a regulated tariff.
Kansai Electric declined to comment specifically on the Elliott stake but said it intended to continue engaging in careful communication with its shareholders. Elliott declined to comment.
Activists have had difficulty taking on Japan’s utilities. In 2008, the UK hedge fund Children’s Investment Fund Management, also known as TCI, sold its stake in J-Power after shareholders rejected its proposals for higher dividends and management changes. The vote followed broad opposition from Japanese businesses, media and the government to the activist campaign.
Since then, major activists largely avoided the sector until last November, when Elliott unveiled a more than 5 per cent position in Tokyo Gas.
After Elliott’s move, the company put in place a midterm plan involving ¥120bn in near-term buybacks, a dividend raise and ¥100bn in property sales. Its share price has risen by close to 50 per cent, compared with a roughly 15 per cent for the benchmark Topix. Tokyo Gas now trades at a premium to book value.
The people familiar with Elliott’s thinking said the fund hoped it could repeat the feat with Kansai Electric, whose shares have fallen 13 per cent over the past year, including a sharp 20 per cent drop in November after an equity offering.
Kansai Electric — which owns 11 nuclear reactors, seven of which are operating — this year became Japan’s first utility to move towards building the first new reactor since the 2011 Fukushima disaster. In total, 14 reactors have restarted in Japan.
The Kansai Electric stake is Elliott’s seventh major public investment in companies listed on the Tokyo stock exchange.
Last year, the Financial Times reported that the fund had rebuilt a substantial stake in SoftBank and was pushing the Japanese technology conglomerate to launch a share buyback.
