Dai Nippon Printing shares soar after response to activist Elliott’s demands

Shares in Japan’s Dai Nippon Printing soared on Friday by their biggest-ever margin after the company appeared to bow to pressure from activist investor Elliott Management by announcing a record share buyback.

A surge of as much as 18 per cent took shares in the 146-year-old printing and high-tech conglomerate to their highest level since 2007, adding to an advance that has now propelled them 40 per cent higher in the three weeks since the Financial Times reported on Elliott’s stake in the company.

Its investment in DNP is part of a broader resurgence of investor pressure on Japanese companies, which had receded during the pandemic. The retail giant Seven & I and printer maker Ricoh are currently under attack from shareholder activists, with banking advisers warning corporate clients that the overall number of campaigns can be expected to rise.

At an earnings presentation on Thursday, DNP told investors it would aim to deliver a return on equity of 10 per cent and for its shares to trade above book value. The company also revealed plans for “the largest acquisition of treasury shares in DNP’s history with the aim of improving capital efficiency”. It did not immediately provide details on the timeline and size of the buyback.

The FT reported last month that Elliott, one of the world’s largest activist funds, had built a stake of just under 5 per cent, worth about $300mn at the time, in the company. The value has now risen to around $420mn. The hedge fund has been selective to date in its involvement with Japanese companies, with SoftBank and Toshiba being the most high-profile examples.

According to people close to the fund, Elliott had set out a series of demands for more shareholder-focused action by DNP’s management, which has been sitting on a significant mountain of cash and multibillion-dollar stakes in other listed Japanese companies. Its share price had been languishing at the same levels seen 20 years ago.

Elliott also sees DNP as having untapped value in two of its non-traditional businesses. One providing a critical component in electric vehicle batteries and another that supplies a key part in screens for high-end mobile phones have dominant global market share.

People close to Elliott said discussions between the fund and DNP, while generally friendly, had included direct requests for the company’s surplus cash to be used for buybacks to improve the return on equity ratio. The hedge fund also wanted cross-shareholdings to be sold off in the name of improving governance standards, minimising conflicts of interest and deploying capital more beneficially for investors.

Elliott senior portfolio manager Nabeel Bhanji said the fund welcomed DNP’s commitment to announce the largest share buyback in its history, accelerate the disposal of its cross-shareholdings and focus on increasing its return on equity target to 10 per cent.

“In our view, these measures represent an important initial step in addressing DNP’s persistent and unwarranted undervaluation. We look forward to continuing our constructive engagement,” Bhanji said in a statement.