October 25, 2017 5:02 am JST

Tokyo Broadcasting investor launches activist campaign

LONDON (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.

An emailed request to TBS for comment, outside Japanese business hours, was not immediately returned.

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'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.

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