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The return of the activist shareholders

TOKYO -- Overseas investors that made waves in Japan last decade as activist investors are becoming players there again, with U.S. and European hedge funds making sizable purchases to hold for the long run.

     When the Nikkei Stock Average rebounded Wednesday, regional banks such as Kagoshima Bank and Chugoku Bank rose across the board to reach year-to-date highs.

     Many regional banks had not enjoyed the benefits of the bull market, with price-to-book ratios stuck well below 1. But U.K. asset management company Silchester International Investors disclosed in February and March that it holds stakes of more than 5% in Bank of Yokohama and Chugoku Bank.

     Silchester is an activist shareholder famous for buying value stocks. It purchased significant stakes in regional banks and other businesses in the mid-2000s as well.

     It exercises its voting rights at shareholders meetings, and its disclosure reports mentioned requests for changes to capital policies, such as conducting share buybacks, raising dividends and retiring treasury stock.

     Another value-stock fund whose moves have drawn attention is Dalton Investments, headquartered in California. Dalton disclosed in mid-February a 5.26% interest in restaurant operator Saizeriya. It boosted its stake in such companies as drugstore operator Cocokara Fine this year as well.

     Dalton's investment style involves holding undervalued stocks for the long term. In particular, it prefers owner-operator-style companies that align the interests of management and shareholders. Like Silchester, it was an active, vocal investor in Japan in the middle of last decade.

     "I think they look highly on our growth potential and the originality of our business," says President Shinichi Tamagami of Prestige International, a business process outsourcing company in which Dalton holds a more than 6% interest. "We're in a good relationship."

     Dalton had not made any noteworthy investments in Japan for the last several years. Why is it making a move now?

     Contributors to these funds likely include U.S. pension funds and university endowments. With interest in Japanese stocks growing overseas, more clients may have asked for their money to be invested in that market.

     And when asset managers buy stakes in companies with smaller market capitalizations, it is easy to go over the 5% ownership threshold that requires disclosure.

     The flow of long-term money from abroad into small-cap stocks stands out sharply. But these investors are strict when it comes to dividends and other policies. To keep the trend going, businesses will have to continue meeting investor expectations through such moves as lifting dividend payouts.


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