Rising Sun Management, the fund manager which also advises the successful Nippon Active Value Fund [LSE:NAVF], is upping the stakes in its push for Japan-listed Intage Holdings [TKY:4326] to go private. The activist fund manager has now announced an offer to buy 100% of the Japanese market research firm at a price of JPY 1900/share.Following the formal offer, Rising Sun has said it is expecting Intage to convene an independent committee as described by Japanese M&A guidance, to properly evaluate the offer. It is subject to financing and approval by the board of Intage Holdings.
By way of background, on 27 January 2022 RSM sent a letter to Intage Holdings urging that it undertake immediate preparations to organise a management buyout. This followed a filing on the 18th January 2022 which showed Nippon Active Value Fund, the activist, Japan-focused Investment Trust, in combination with two LLCs, Earl 1927 and Michael 1925 held 4.1 million common shares in Intage, making the investor group the company’s biggest shareholder with a 10.17% stake. RSM is investment adviser to the investor group.
In his letter to Intage President, Noriaki Ishizuka, Paul ffolkes Davis, Chairman of Rising Sun Management, said: “We remain convinced that the immediate future of Intage Holdings should be as a private company, able to pursue its various initiatives away from the glare of the public market. As we have always said, we are keen to achieve this outcome in the spirit of friendly co-operation. We still hold this aspiration, and we hope you will too.”
Areas of concern around Intage Holdings
In the past, RSM has highlighted several areas of concern with how Intage is managed. They include a lack of widely held stock incentives for management and employees, an unsuitably expansionist acquisition policy lacking sufficient financial returns, and slow progress in digitising operations and low levels of automation in the business generally.
The investor group led by Rising Sun acts as an activist investor drawing on the RSM team’s significant Japanese market knowledge and their two decades of successful engagement to generate uncorrelated returns. Many Japanese companies are under-researched, show rising balance sheet cash reserves and have questionable capital allocation policies.
Shares in Intage are currently trading well off the Rising Sun offer price at JPY 1684 (Tuesday close). They had previously been up at JPY 1860 ahead of the announcement from Nippon Active Value and its allies.
Rising Sun’s activist strategy in Japan
RSM seeks to engage with investee company management teams to promote value-enhancing corporate reorganisation and capital allocation strategies that can result in significantly improved returns for all stakeholders, including management, employees and shareholders.
In 2021, RSM led a campaign to pressure the management of Sakai Ovex to conduct an MBO, arguing that the firm was significantly undervalued by the market. RSM first proposed an MBO at ¥2350, and a transaction was eventually consummated at a price of ¥3810, following the involvement of other likeminded investors, resulting in a significant gain for investors advised by RSM.