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UPDATE 1-Tokyo Broadcasting investor launches activist campaign
October 25, 2017 / 11:40 AM / 24 days ago

UPDATE 1-Tokyo Broadcasting investor launches activist campaign

* Asset Value Investors calls for sale of cross-holdings

* Wants stake in Tokyo Electron sold down

* Latest move by investors to shake up corporate governance (Adds TBS comment)

By Simon Jessop and Sam Nussey

LONDON/TOKYO, Oct 25 (Reuters) - A London-based investor in Japan’s Tokyo Broadcasting System Holdings (TBS) said it was pressing the company’s board to sell stakes in other companies and return the resulting windfall to shareholders.

The activist campaign is the latest attempt by a Western investor to overhaul corporate governance in a Japanese company, a mission shared by the government of Shinzo Abe which sees such moves as a valuable spur to economic growth.

Asset Value Investors (AVI), whose 1.5 percent stake in TBS is worth around $57 million, said on Tuesday if the company fails to act, AVI was prepared to put a formal resolution to a vote at the next annual shareholders’ meeting.

TBS’s biggest cross-holding is in Tokyo Electron, where it is the fourth-biggest shareholder with a 4.7 percent stake worth $843 million, Thomson Reuters data showed.

“As an investor in TBS today, you’re effectively buying Tokyo Electron, and that’s not right,” said Joe Bauernfreund, chief executive of AVI, confirming what the Wall Street Journal reported on Tuesday.

Bauernfreund said AVI, which manages around $1 billion, met the company in March and first wrote to it in April outlining its thoughts, but the request was ignored.

It then met TBS again in July, when the company acknowledged it had received the letter, before writing a second time in September. A response to that letter came last week, in which TBS said it was giving due consideration to its holdings, according to Bauernfreund.

TBS confirmed it had received AVI’s proposal and said that it was being considered by senior management in line with company practice.

Cross-shareholdings are held to “maintain a proper business partnership and mutual faith,” the company said in a statement, adding that shareholdings are regularly reviewed.

TBS’s cross-shareholdings portfolio accounts for almost the total market value of the company, of which between 35 and 40 percent was in Tokyo Electron, making it “the obvious one” to deal with, Bauernfreund said.

“It means the value of the stake in Tokyo Electron is about a third of the market cap of Tokyo Broadcasting; it’s far more important than the television production business they engage in.”

While there was a historical commercial relationship between the two companies, there was now no explicit, significant relationship between them, Bauernfreund said, referring to disclosures in the company’s annual report.

Bauernfreund said he was mindful that corporate cross-holdings were an important part of Japanese corporate culture, so he would be happy to see TBS sell a quarter or a half of its stake as a first step.

“It would be well received by shareholders and demonstrate the company takes the issues of corporate governance and achieving a high ROE (return on equity) and capital efficiency seriously,” he added. (Reporting by Simon Jessop and Sam Nussey; Editing by David Holmes/David Evans)

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