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The UK-based activists fund has become the top shareholder of a major Japanese till maker, betting that it can boost returns, reduce its balance sheets and even drive sales as the global auto sector experiences rapid disruption.
Palliser Capital will announce at the Sohn Conference on Friday at the annual hedge fund manager meeting in Hong Kong that it has acquired approximately 3% stake in Toyo Tire over the past six months.
Palliser has placed a series of big bets on Japan, including building shares in Tokyo Tatemono, a real estate company that operates trains in the capital and Keisei Electric Railway. The UK Fund, founded by two Elliott management executives, has launched a high-profile campaign by Anglo-Australian miner Rio Tinto to unify its dual-listed equity structure. Such a move was rejected by shareholders last month.
With Toyo, the fund is driving streamlined balance sheets and overcapital releases, with the goal of returning $900 million to shareholders. Palliser also urges companies with a market capitalization of $3 billion to establish a special committee. The majority of external directors and independent advisors look at all strategic options, including sales and becoming private.
Japanese automotive suppliers have become the target of activist investors who are keeping banks in corporate governance reforms that force companies to improve capital allocation and force automakers to purchase subsidiaries and parts providers. Fierce competition with China’s EV group has also created the need for larger and stronger suppliers.
The plan to film Toyota Motor’s largest subsidiary for around $420 billion boosted that belief. Many small suppliers are targeted by funds related to Murakami Yoshiaki, the country’s most well-known activist, allowing investors to rapidly increase their valuations.
A key part of Palliser’s discussion revolves around a 20% stake in Toyo Tires held by Mitsubishi Corporation, a highly influential Japanese trader. Mitsubishi became the largest shareholder after Toyo was hit by a data falsification scandal 10 years ago.
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The incident has caused the company to overconservative financial guidance and leverage, the same people say, and Mitsubishi’s interests are considered a potential overhang in the stock.
Mitsubishi told FT: “There will be no change in our policy of holding Toyo Tire’s stake. We will continue to contribute to the future improvement of Toyo Tire’s corporate value.” Toyo did not immediately respond to requests for comment. Pariser declined to comment.
According to people familiar with Palliser’s ideas, the company is trading at a massive discount on its peers despite beating them with many profit metrics. The stock price rose nearly 20% this year to nearly 2,850 yen. Palliser believes that implementing the recommended measurements could potentially reach 4,200 yen.
Despite the increasing pressure, the involvement between Palliser and Toyo has been constructive, the same people said.
Toyo has a strong position in the premium tire market, gaining a 40% market share in the US for SUVs and light trucks. Over 90% of sales come from replacement tires, much higher than their rivals, suggesting a strong attachment to the brand.
