Elliott’s $5.5 Billion Japan Shift Faces Test on Toyota Deadline

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The firm stepped up its Japan activities after hiring Aaron Tai from Cornwall Capital in 2023 to lead investments in the country. Tai has built up the team by recruiting two Japanese investment analysts, adding headcount for research and drawing on the firm’s broader engagement resources. Based in San Francisco, he travels to Japan often and reports directly to Gordon Singer, managing partner and the son of Paul Singer.

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Tai cut his teeth investing in Japan during a decade-plus career at Cornwall, one of the firms depicted in The Big Short for its bets against the US subprime mortgage market. His track record there offers clues to his approach.

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At Cornwall, Tai helped thwart a 2020 bid by refiner Idemitsu Kosan Co. to buy out minority shareholders of listed subsidiary Toa Oil Co. The Tokyo-based group eventually came back with a 29% higher offer. He also led Cornwall’s takeover of radio gear maker Uniden Holdings Corp. in 2022, a rare move by a foreign hedge fund. 

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Elliott was “aware that it needed somebody with a very particular Japanese experience and they found that unique experience in Aaron Tai,” said John Seagrim, a broker at CLSA in London. “He’s not a traditional hedge fund manager — he’s an agent of change.”

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The activist fund publicized its stake in Toyota Industries in November, saying the Toyota group’s privatization bid was too low. Toyota boosted its offer by 15% to ¥18,800 a share in early January, kicking off the tender period that is scheduled to end Thursday. 

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Elliott has continued to push back. It says Toyota Industries is worth at least ¥26,000 — or even ¥40,000 if it stays public and improves its business strategy. The shares most recently closed at ¥19,670, above the latest offer price.

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Tai notched up an early win when the offer price was raised. Still, he is likely to face pressure given the size of the Toyota Industries investment, which is large even for Elliott and can’t remain idle indefinitely, according to a Japanese company executive that he has consulted with in the past. 

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Perfect Opportunity

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Japan has long been viewed as fertile ground for activists. Firms are flush with cash and assets that are undervalued. Public companies were long protected from shareholder pressure by holding stakes in each other, and domestic institutional investors rarely spoke up. That’s now slowly changing.

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Activists have helped push agendas for investors that might not have moved forward otherwise, said Junichi Sakaguchi, chief responsible investment officer at Sumitomo Mitsui DS Asset Management Co. “There are times when we feel relieved that someone else is willing to say, quite forcefully, what we can’t really state in such a direct, focused way.” 

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Elliott has already scored a number of wins in Japan. It helped convince Softbank Group Corp. to buy back ¥2.5 trillion of shares in 2020. During the tussle over the future of Toshiba Corp., which was eventually taken private for $15 billion, Elliott secured a board seat. More recently, Tokyo Gas Co. hiked its dividend and sold off one of its real estate holdings after the fund took a stake. 

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It has now turned its attention to Toyota Industries’ privatization, a high-profile deal that observers say has sent mixed signals on the direction of Japan Inc. 

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On one hand, it’s the latest step in a long process of unwinding cross-shareholdings across Toyota group companies, a potent symbol of Japan’s corporate governance overhaul. But questions over how the group is unwinding that structure — and how much it willing to pay to do so — opened the door for Elliott to step in.

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“Toyota gave them the perfect opportunity to tackle them,” said Suzuki, the Waseda professor. Elliott has “been searching for some chance to do that, and I think they found it.”

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—With assistance from Momoka Yokoyama, Tsuyoshi Inajima, Kentaro Tsutsumi and Shoko Oda.

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