12 ★ FINANCIAL TIMES Wednesday28 August 2019COMPANIES
A
spate of hostile takeover battles has raised
hope among investors that corporate Japan is
finally embracing shareholder activism. But
for companies that were spooked by foreign
buyout groups, calledhagetaka(vulture)
funds by the domestic media in the early part of the past
decade, recent deals show they face a new opponent:Japa-
nese corporate owners who have turned belligerent in
their pursuit of higher returns and growth.
Last week,HIS, the travel agency, abandoned a hostile
takeover ofUnizo Holdings, the hotel chain operator, fol-
lowing a white knight counter-offer fromSoftBank-owned
Fortress. A month before, SoftBank-backedYahoo Japan
ousted the chief executive and three independent direc-
tors ofAskul, saying it was unhappy with the stationery
supplier’s performance. In March, Itochu amassed a
40 per cent stake inDescentethrough a hostile bid, giving
the trading house more say in the management of the
sportswear group.
The rise in unsolicited offers and proxy fights has coin-
cided with breakthrough private equity deals by the likes
ofBain CapitalandKKR, which in turn have sparked
renewed interest fromThird Point,Elliott Management
and other activist funds. But it is the emergence of more
aggressive domestic acquirers that has convinced long-
time investors in Japan such asDavid Baran, chief execu-
tive ofSymphony Financial Partners, that the tide has
turned. “This is about Japanese corporate owners saying I
have to grow my business,” said Mr Baran.
For decades, big Japanese investors have generally
sought to protect the companies they invested in — often
due to historical business ties — from outside intervention.
Now, as some large Japanese investors turnagainst busi-
nesses they consider poorly managed, companies face a
dilemma. They can defend their management strategy
and lament a breakdown of trust with shareholders — but
it is no longer acceptable to simply criticise a hostile strat-
egy nor can they rely on sympathy from other investors.
Both the corporate governance code for Japanese com-
panies and the stewardship code for institutional investors
call for engagement and pursuit of higher investment
returns. Domestic share-
holder activism is supported
by Shinzo Abe, the prime
minister, who has bolstered
his governance campaign
with changes in merger and
acquisition and tax rules to
facilitate all-stock deals.
Still, the way some of these
deals have played out shows
how unprepared some Japanese companies remain.
Unizo has staved off the hostile approach by HIS but it
may have opened itself up to a bidding war in its search for
a white knight. Among its top shareholders are Ichigo
Asset Management, a value-focused Japan investor, and
Elliott Management.
Having exposed itself as a massively undervalued com-
pany with a coveted property portfolio, it is unlikely inves-
tors will be satisfied with Fortress’s counter offer of ¥4,
($38) a share. A UBS calculation, based on unrealised gains
and book value, estimates Unizo has a pre-tax net asset
value of closer to ¥10,000. If a bidding war erupts, it is
unclear if Unizo will end up in friendly hands.
In the case of Yahoo Japan’s overthrow of Askul’s man-
agement, the battle could not have been uglier. The dis-
pute stemmed from a clash over the future of Lohaco, their
ecommerce joint venture, but it quickly became a govern-
ance disaster after Yahoo Japan sought not only the
removal of the chief executive but also of three external
directors. The campaign was widely seen as an improper
exercise of power by a controlling shareholder, reinforcing
the view what parent-child listings should be eradicated,
since the structure is ripe for abuse of minority sharehold-
ers and conflicts of interest.
As a shareholder with a 45 per cent stake, Yahoo Japan
has a legitimate right to seek action to fix Askul’s financial
performance to increase its value, but its implementation
was simply misguided.
Masayoshi Son, SoftBank’s founder, waded in, express-
ing his disapproval of Yahoo Japan’s conduct. But his com-
ments, and subsequent remarks by other SoftBank execu-
tives, were uncalled for. They should have stuck to their
argument that the campaign was an independent decision
made by Yahoo Japan’s management, instead of a laboured
lament about how parent-child listings are not unique to
Japan — a point that while true is irrelevant to the debate.
Japanese companies may find it uncomfortable dealing
with their newly aggressive domestic investors, but it is a
reality that is fortunately here to stay, so they may as well
get used to it.[email protected]INSIDE BUSINESS
ASIA
Kana
Inagaki
Japan Inc wakes up
to investor activism
in its own backyard
‘This is about
Japanese owners
saying I have
togrowmybusiness’
JUDE WEBBER— MEXICO CITYMexico’s president Andrés Manuel
López Obrador has claimedvictory in a
dispute over pipeline contracts that he
said would result in $4.5bn in savings
for the state and pave the way forbig
private sector investment in a large-
scale infrastructure plan.The deal reached on Monday night
resolves abitter battleover pipeline
contracts signed by the state electricity
company, CFE, before Mr López Obra-
dor took office last December, which his
government claimed were “exorbitant
and unfair”. The dispute had threatenedfragile business confidence by raising
the prospect that the government would
not honour contracts with which it disa-
greed. While the contracts were in the
end renegotiated, Carlos Salazar, head
of Mexico’s powerful CCE business
lobby, called it a “win-win” for all sides.
Mr López Obrador told his daily news
conference that the new contracts —
which lower tariffs for transporting gas
inpipeline projects with US, Canadian
and Mexican companies — were benefi-
cial to all sides, and praised business
leaders for their goodwill.
The president had spooked investors
before taking office last December byscrapping a $13bn airport project in
whichCarlos Slim,Mexico’s richest
man, had been aleading investor. But
Mr López Obrador singled out the tele-
coms mogul for particular praiseyester-
day, saying he had been the first to sign
on to the new pipeline terms.
That agreement byCarso Energy“set
the tone” forIEnova, a unit of US com-
panySempra Energy, and Canada’sTC
Energyto follow suit, Mr López Obrador
said.Fermaca, a Mexican company, was
still in negotiations.
Full details of the deal were not imme-
diately available, but Mr López Obrador
said the companies had agreed to aroughly 30 per centcut in their profits.
The resolution of the dispute, which
the CCE had escalated last month by ini-
tiating international legal action, paves
the way for a key subsea pipeline carry-
ing cheap US gas from southern Texas to
Tuxpan, built by TC Energy and IEnova,
to start operations “in a week at the
most”, the president said.
“I think it’s very positive that today
we are in a different place, that there’s a
different tone,” said Pablo Zárate, man-
aging director of FTI Consulting and an
energy expert. “This was not the only
problem for business confidence, but it
had become a major one... Today wehave a happy ending, but this is a situa-
tion the government created.”
The deal comes just days before Mr
López Obrador’s first state of the nation
speech on September 1, in which he will
emphasise how he has delivered on
campaign promises, including social
programmes and higher minimum
wages.
But promises of stronger growth have
failed to materialise. Revised gross
domestic product data published last
week showedzero growthin the second
quarter, after a small contraction in the
first quarter, pushing Latin America’s
second-biggest economy to the brink ofa technical recession as investment
remains on hold.
Mr López Obrador has promised to
lift Mexico’s stubbornly sluggish histori-
cal growth rates to 4 per cent a year dur-
ing his presidency. “Growth may be
zero, that doesn’t matter. The important
thing is that there hasn’t been a lot of
investment and that it is now imminent,
even starting this year,” Mr Slim said,
adding there were opportunities in
hydrocarbons, road, water, education,
health, ports and airport projects.
Mr López Obrador said the govern-
ment would soon announce a national
infrastructure plan, but gave no details.Energy
Mexico paves way for investment after striking deal to settle pipeline dispute
RICHARD MILNE— OSLOThe world’s largest sovereign wealth
fund should slash its investments in
Europe and increase them sharply in
North America, according to a recom-
mendation from its managers.
Norway’s central bank, which handles
management of the of $1tn oil fund, said
that the investor should move away
from its position of being overweight in
European equities and underweight in
US shares relative to global stock indices
and more towards the norm, without
naming a specific target.The fund, which is one of the world’s
largest equity investors, on average
owns the equivalent of 1.5 per cent of
every listed company globally. Europe
represents 34 per cent of its equity
benchmark against 40 per cent for
North America.
The fund, which is watched closely by
other shareholders, recommended
moving towards a market weight
adjusted for the amount of shares avail-
able to be bought, known as the free
float, which currently gives Europe a
share of 19 per cent and North America
57 per cent.
“We are of the opinion, however, that
the geographical distribution should be
adjusted further towards float-adjusted
market weights by increasing the weight
of equities in North America and reduc-ing the weight of equities in European
developed markets. The gap to market
weights will then be smaller than today,”
the bank said.
The Scandinavian country’s govern-
ment will decide whether to follow the
central bank’s advice and is likely to
announce its response in the spring,
when it publishes an annual white paper
on the fund, which is then voted on by
parliament.
Norway last changed the regional
allocation of the fund in 2012 when it cut
back on European equities at the height
of the eurozone government debt crisis.
At the time, European equities
accounted for 50 per cent of the total,
and North America 35 per cent.
The government defended the higher
allocation to Europe before 2012 byinsisting that the fund should largely
mirror the country’s trade flows. How-
ever it abandoned this because it led not
just to an underrepresentation of US
assets but also of those from emerging
markets.
In 2012, however, it decided against
moving to full market weights as that
would have been “too dramatic” a
change in the fund.
Norway’s central bank also consid-
ered yesterday whether it should make
changes to emerging markets, not least
by making its own sub-index for the
asset class, but recommended against
making alterations.
Emerging markets account for 11 per
cent of the fund’s equity benchmark
today and under float-adjusted market
weights the figure would be 10 per cent.Financials
Oil fund urged to cut Europe exposure
Central bank advises
Norway’s $1bn sovereign
investor to switch into USNEIL MUNSHI— TIN CAN ISLANDUntil a year ago, Friday Ighodaro spent
three or four nights a month getting
pulled out of his 30-tonne Steyr truck on
the unlit highways of rural Nigeria by
armed robbers. They know that long-
haul truckers carry cash advances for
provisions along the way, he said.
“Nowadays in Nigeria when you carry
money, it’s very dangerous,” he said.
Bandits prowl the roads across the coun-
try, “but now when they stop you on the
road, when they see the Honeywell sign,
they know we don’t carry cash”.
Mr Ighodaro is an owner-operator
who hauls grain to every corner of
Nigeria forHoneywell Flour Millsand
other clients ofKobo360, a 20-month-
old start-up which announced this
month that it had raised $30m in debt
and equity in a funding round led by
Goldman Sachs.
The company uses an “Uber for logis-
tics” model to connect drivers and fleetoperators to companies bringing goods
into and around Africa’s most populous
country, and also Togo, Ghana and
Kenya, as it attempts to bring a cashless,
app-based paperless system to an indus-
try mired in reams of paperwork and
handshake relationships.
Where many drivers might get 30 per
cent of their pay upfront in cash from
traditional trucking companies — for
food and fuel en route — Kobo pays
them 70 per cent on starting the trip,
directly to their bank account. Drivers
can then use apps on their phones to pay
for food, or use a Kobo service to buy
discounted fuel at petrol stations via
their phones.
Its operations became all the more
relevant last month on the signing of a
continent-widefree trade dealaimed at
bolsteringintra-African commercial
links, which are far less than developed
than those elsewhere.
Mr Ighodaro signed up with Kobo a
year ago, and has not had to hustle for
business in the crowded truck depots of
Lagos since. Nor have he and his fellow
drivers — Kobo said it has signed up
more than 10,000 — had to wait in the
notorious, winding line that leads to
Lagos’s main ports. Kobo provides its
drivers with a lift via barge to its
customers inside the port.
“Tin Can [in Lagos’ port] is the hard-
est place to move goods in the world —the hold-up for days, the soldiers extort-
ing money from drivers in line,” said
Goni Gombe, whose family fleet of 60
trucks has seen business triple in the
year since it signed up with Kobo. “But
now we can go in and out.”
Shoddy infrastructure is one of many
challenges, along with corruption, poor-
quality trucks and high fees, that make
logistics among the biggest obstacles for
businesses trying to make it in Africa’s
largest economy andthe continent.
Most African countries rank near the
bottom of the World Bank’s annual
logistics performance index because the
system is rife with inefficiencies. Send-
ing a container from China to Lagos is
sometimes cheaper than moving one
from the Lagos portacross the city, said
Obiora Madu, head ofthe Nigeria-based
African Centre for Supply Chain.
“If you are shipping coffee from
Kenya, you actually have to go to Europe
first before it comes to Nigeria [as there
are no roads connecting the two coun-
tries],” he said. “And by that single act,
you have destroyed any cost advantage
you were supposed to have had.”
Companies such as Kobo360 and
Kenya’sLori, its main competitor, are
trying to revolutionise the logistics sys-
tems that will be key to the success of
the recently signedAfricanContinental
Free Trade Area agreement. The accordaims to boostgrowth on a continent
with a combined gross domestic prod-
uct of more than $3tn and afast-growing
population.
“Logistics is at the heart of the [agree-
ment] — that’s the only thing that will
make it work, because it’s not like we
have rail,” saidObi Ozor,co-founder of
Kobo360. Africa’s limited rail system
has remained largely unchanged since it
was built by colonial powers. “And do I
think any of the countries will have full
rail in the next 25 years? That’s not pos-
sible. [We are] already moving stuff
from Nigeria to Ghana, and it’s taking us
16 days to [move 460km].”
In the west, the unstable and demand-
ing nature of work under the gig econ-
omy has generated a significant back-
lash from workers and commentators
alike. But in Nigeria, where nearly a
quarter of the population is unem-
ployed, platforms that connect free-
lance workers to jobs can be a lifeline.
“They would be my second god if they
[could] give me even more business,”
said James Okoruwa, a Kobo driver.
“That’s what we’re praying for.”
Kobo offers truck financing, dis-
counts on diesel, healthcare and school
fees assistance, per-trip insurance and
upfront payments — forpay cheque to
pay chequetruckers used to waiting two
or three weeks to get paid.And it offers customers — likeUni-
lever,Dangote Sugarand steel manufac-
turerAfrican Industries— the ability to
trackdeliveriesin real time. If a truck
breaks down— a frequent occurrence
on highways with potholes big enough
to swallow cars —Kobo said it can
dispatch a team to fix it, secure the pay-
load from bandits and move the load to
a new truck for delivery.
Kobo plans to use the $20m in equity
from Goldman, Y Combinator, the
International Finance Corporation and
others to push further into Nigeria,
expand into 10countries and launch a
blockchain-enabled logistics platform
to bring together allits services. The
additional $10m in debt it raised from
Nigerian banks will be used to offer
financing to drivers and fleet operators.
Mr Ozor, 30, had brief stints as a
JPMorgan investment banker and as
operations manager forUberin Nigeria
before launching Kobo in 2017. He plans
to visit China this month to start design-
ing “a truck that works for Africa” to
halve the costs for Nigerian hauliers.
“There is no truck driver in Africa
who uses AC, so why do we have $11,
more additional costs for that? We have
this digital dashboard — we don’t need
that, take that $7,000 out and spend
$4,000 on new suspension — that’s what
we need in Africa.”Technology.Land transport
Uber-style app drives change for African trucks
E-logistics start-up sets out
to clear obstacles in the way
of the continent’s drivers
Long haul: Obi
Ozor, left, and
Ife Oyedele II,
co-founders of
Kobo360, which
aims to drag the
haulage
industry into
the modern age‘Drivers can now use
payment apps on their
phones to pay for foodor buy discounted fuel’
34 %
Percentage
represented by
Europe in fund’s
equity benchmark40 %
Percentage
represented by
North America
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