Elliott Management Corp. has built a “large” stake in Sumitomo Corp., one of Warren Buffett’s favorite Japanese trading houses, according to a person familiar with the matter.
The size of the activist group’s investment is around “several tens of billions of yen,” the person said, asking not to be identified because the transaction hasn’t been publicly disclosed. Every ¥10 billion ($64 million) investment is equivalent to a 0.2% stake in Sumitomo, based on Friday’s closing share price of ¥3,909. Japanese markets were closed for a public holiday Monday.
Japan is one of the hottest markets for activist investing, with the government and institutions such as the Tokyo Stock Exchange asking companies to better manage balance sheets and retool business strategies to boost shareholder returns. Elliott — founded by billionaire Paul Singer — recently focused on developer Mitsui Fudosan Co., after previously targeting Toshiba Corp., SoftBank Group Corp. and Dai Nippon Printing Co.
Elliott has engaged with Sumitomo and shared its views on ways to create shareholder value, the person familiar told Bloomberg. It is unclear when the fund accumulated its stake in Sumitomo, or when the discussions took place.
A representative for Elliott declined to comment, while Sumitomo said it doesn’t comment on shareholders.
Given activist pressure, “lagging trading companies should need to not just take care of their own large project risks, but are also subject to pressure to pay out more,” said Kelvin Leung, a portfolio manager at Robeco Hong Kong Ltd. “The question remains if management can deliver bolder shareholder-friendly measures and further divestment of non-core and non-performing assets,” he said.
Japanese trading houses’ shares have surged to records since Buffett said a year ago that he would be raising his holdings in them. In February, he said in his letter to investors that the companies follow shareholder-friendly policies that are “superior” to those practiced in the US. Sumitomo shares reached their highest ever last week, and have climbed 27% this year.
Sumitomo’s peers also saw their stock prices rally on shareholder returns. In February, Mitsubishi announced a buyback of up to 10% of its shares for ¥500 billion, while Itochu said in April it plans to repurchase about ¥150 billion of stock.
Berkshire Hathaway Inc. holds about 8.3% of Sumitomo, according to data compiled by Bloomberg. It also invests in other trading firms including Mitsubishi Corp., Mitsui & Co., Itochu Corp. and Marubeni Corp., and has said it hopes to eventually own 9.9% of each.
Sumitomo is Japan’s fourth-largest trading firm with a market capitalization of ¥4.8 trillion, data compiled by Bloomberg show. It has a price-to-book ratio of 1.1 and a forward 12-month price-to-earnings ratio of 9.5, both the lowest among its peers. Sumitomo’s fiscal 2023 earnings are due Thursday, when the company is also scheduled to reveal its medium-term business plan.
Activism from shareholders has been boosting the broader Japanese equity market, contributing to a rally to record highs.
Mitsui Fudosan released a plan in April to sell assets and increase buybacks, two months after news of Elliott’s stake in the firm, while Dai Nippon Printing announced its largest-ever stock buyback in March 2023 following pressure from the activist fund.