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Investment trust insider on AVI and activism

Investment Trust Insider on Perpetual Income and Growth

Investment trust insider on AVI and activism – James Carthew: AVI makes fresh gains with activist push

In recent months, AVI Global (AGT) and AVI Japan Opportunity (AJOT) seem to have ramped up their activist activities.

To be fair, engaging with companies to unlock value for the benefit of shareholders is core to the approach of both investment trusts and their manager Asset Value Investors (AVI). This engagement goes on all the time behind the scenes but, every now and then, it flares up into a public dispute.

AVI Japan Opportunity has been calling out a number of companies which it is invested in for their perceived failings.

At Tokyo Radiator Manufacturing, AJOT is asking for some of its vast cash pile (equivalent to more than the company’s market capitalisation) to be returned to shareholders. The £139m trust asks, entirely reasonably, why half of Tokyo Radiator’s cash is on deposit at its parent company Marelli Corporation. Marelli is controlled by US private equity firm KKR and AJOT accuses it of using Tokyo Radiator as a cheap source of funds.

At NS Solutions, AJOT is after a higher dividend after the company cut its payout last year despite having ¥145bn (£933m) of ‘surplus cash and investment securities’. AVI, led by Joe Bauernfreund, also wants NS Solutions to use some of its cash pile to buy back shares from the controlling shareholder, Nippon Steel Corporation, which holds so much of the company’s share capital that it risks NS Solutions’ status as a Prime Market stock on the Tokyo Stock Exchange.

SK Kaken makes paint – not the most glamorous of industries, but not so awful as to merit the company trading on one times its earnings before interest and tax or having a market cap equivalent to 93% of its cash pile. Again, AJOT wants action to address the valuation discount, but is up against a controlling shareholder who doesn’t seem that bothered by the situation.

As evidence that this engagement can work, AJOT has…

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