Elliott Boosts Sumitomo, Shares Soar 9.1% Since '20

Key Takeaway

• Elliott Management acquires a significant stake in Sumitomo Corp., driving shares up by 9.1%, marking the largest jump since August 2020.
• The investment highlights Japan's growing appeal to activist investors, with Elliott targeting companies for governance improvements and shareholder value enhancement.
• Sumitomo's stock surge reflects investor optimism ahead of its fiscal 2023 earnings, buoyed by Elliott's history of successful engagements in Japan.

Elliott Management's Strategic Investment

Elliott Management Corp., an activist investment firm led by billionaire Paul Singer, has recently acquired a significant stake in Sumitomo Corp., marking another notable investment in Japan by the firm. The investment is reported to be worth "several tens of billions of yen," indicating a substantial commitment to the Japanese trading house, which is also backed by Warren Buffett. This move is part of Elliott's broader strategy of engaging with Japanese companies to enhance shareholder value and improve corporate governance. The firm has a history of investments in Japan, including stakes in Mitsui Fudosan Co., Toshiba Corp., SoftBank Group Corp., and Dai Nippon Printing Co.

Japan's Attractive Market for Activism

The Japanese market has become increasingly attractive to activist investors like Elliott Management, driven by encouragement from the government and the Tokyo Stock Exchange for companies to improve balance sheet management and shareholder returns. This shift in the investment landscape has facilitated Elliott's focus on Japanese firms, with Sumitomo Corp., Japan’s fourth-largest trading firm by market capitalization (¥4.8 trillion), emerging as a significant target. The engagement reflects a growing trend of activism in Japan, aiming to unlock shareholder value through strategic engagements and improved corporate governance.

Sumitomo's Market Performance and Outlook

Sumitomo Corp.'s shares surged by the most since August 2020, jumping as much as 9.1% in Tokyo trading, following the news of Elliott Management's investment. The company's stock performance has been robust, with a 27% increase this year, reaching record highs. This surge in stock price comes ahead of Sumitomo's announcement of its fiscal 2023 earnings and medium-term business plan. Warren Buffett has previously praised the shareholder-friendly policies of Japanese trading houses, including Sumitomo, highlighting their potential for value creation. Sumitomo's market valuation and performance, coupled with its low price-to-book ratio and forward 12-month price-to-earnings ratio among peers, underscore its attractiveness to investors like Elliott Management.

Shareholder Activism's Impact

Elliott Management's engagement with Sumitomo Corp. is indicative of the broader trend of shareholder activism in Japan, which has contributed 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 have not been disclosed. This approach is consistent with Elliott's history of active engagement aimed at unlocking value in its investments. The firm's involvement in Japan reflects a changing dynamic where activist investors are increasingly seen as catalysts for positive change, offering strategies that could benefit all shareholders.

Street Views

• Mio Kato, LightStream Research (Bullish on Sumitomo Corp.):

  "The stake makes a lot of sense and seems like a relatively easy win for Elliott because there is reasonable potential to be extracted without needing any complicated gymnastics here... Elliott could easily drive a significant improvement in governance and shareholder returns."