Elliott Buys Big in Buffett-Backed Sumitomo, Up 27% This Year

Key Takeaway

• Elliott Management acquires a "large" stake in Sumitomo Corp., signaling continued interest in Japanese firms for shareholder value enhancement.
• Sumitomo, with a market cap of ¥4.8 trillion and praised by Warren Buffett, has seen its stock rise 27% this year to record highs.
• Elliott's engagement reflects a broader trend of shareholder activism in Japan, aiming to unlock value and improve corporate governance.

Elliott Management's Strategic Investment

Elliott Management Corp., the activist investment firm founded by billionaire Paul Singer, has reportedly acquired a significant stake in Sumitomo Corp., a favored investment of Warren Buffett. The stake is described as "large," with investments amounting to "several tens of billions of yen." This move by Elliott underscores the firm's ongoing interest in Japanese companies, following its engagements with Mitsui Fudosan Co., Toshiba Corp., SoftBank Group Corp., and Dai Nippon Printing Co. The exact size of the stake translates to approximately a 0.2% share for every ¥10 billion ($63 million) based on Sumitomo's recent closing share price.

Japan's Attractive Market for Activism

The Japanese market has become increasingly appealing to activist investors, spurred by calls from the government and institutions like the Tokyo Stock Exchange for companies to enhance balance sheet management and refine business strategies to improve shareholder returns. This environment has facilitated Elliott's recent focus on Japanese firms, aiming to unlock shareholder value through strategic engagements. Sumitomo, as Japan’s fourth-largest trading firm with a market capitalization of ¥4.8 trillion, presents a notable target for such investment strategies.

Sumitomo's Market Performance and Outlook

Shares of Japanese trading houses, including Sumitomo, have seen a significant uptick since Warren Buffett highlighted his intention to increase his investments in these firms. Buffett has praised the shareholder-friendly policies of these companies as “superior” to those in the US. Sumitomo's stock has risen 27% this year, reaching record highs. The company, which boasts the lowest price-to-book ratio and forward 12-month price-to-earnings ratio among its peers, is poised to announce its fiscal 2023 earnings and medium-term business plan shortly.

Shareholder Activism's Impact

Elliott's engagement with Sumitomo reflects a broader trend of shareholder activism in Japan, contributing to a rally in the broader equity market to record highs. The activist fund has reportedly shared its perspectives with Sumitomo on ways to enhance shareholder value, although the specifics of these discussions remain undisclosed. This approach aligns with Elliott's history of active engagement aimed at unlocking value, as seen in its interactions with other Japanese firms like Mitsui Fudosan and Dai Nippon Printing, which have both taken significant steps in response to shareholder pressure.