Japanese optical glass specialist Hoya’s unsolicited bid for a Toshiba subsidiary is a game-changer.

A Nikkei Quick survey showed that the percentage of Japanese companies that thought their shares were undervalued hit a high of 67% in 2019. This was the highest level since the introduction of Japanese reforms in 2013, according to FT.

But Japanese companies also put their money where their mouths are. They shelled out a massive ¥7.2tn ($66bn) on share buybacks in 2019 between January and the end of November.

However, another trend is afoot and could accentuate in the near term. Japanese corporations are now increasingly looking closely at their organizations and selling off subsidiaries, listed or otherwise. What’s more, other corporations are willing to buy up these companies.

Hitachi has been an active player in this regard, and according to market speculation, Mitsubishi Electric may soon follow suit.

Japanese companies looking to enhance valuations

Clearly, Japanese corporations, irrespective of activist pressure, are now not afraid to make divestitures if the transaction results in a fat profit or simplifies their corporate structure. They understand that the latter could boost their valuations.

Moreover, on the buy-side, Hoya’s unsolicited bid last week for microchip equipment maker NuFlare — a listed Toshiba subsidiary – is probably a harbinger of things to come. Note that Hoya’s bid was ¥1,000-per-share higher than Toshiba’s price of ¥11,900 that it offered in its reorganization plan.

Moreover, Hoya’s bid puts NuFlare in a spot. If it rejects Hoya’s offer and accepts Toshiba’s bid, it would have some explaining to do to shareholders.

These trends, therefore, show that Japanese companies are adopting an increasingly friendlier attitude towards their investors. This change in attitude may reflect in better company valuations down the line. Investors could, accordingly, consider investing in Japanese ETFs to ride this trend.

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