Why Mitsubishi Corp Might Consider Making Mitsubishi Food a Wholly Owned Subsidiary

Berkshire Hathaway’s growing interest in Japanese conglomerates like Mitsubishi Corp (ticker 8058) signals a deepening partnership, but the focus on Mitsubishi Corp alone feels predictable and uninspiring. A more strategic move could involve Mitsubishi Corp itself taking action with its subsidiary, Mitsubishi Food (ticker 7451), which presents an intriguing opportunity.

Mitsubishi Food specializes in wholesaling and logistics for processed and frozen foods, tapping into a rare growth segment in Japan’s aging economy. As Japan’s population ages and younger people delay or forgo marriage, the demand for single-household foods—such as processed and frozen meals—has risen steadily, driving the company’s potential.

Financially, Mitsubishi Food trades at an attractive 8.95 price-to-earnings ratio and 0.96 price-to-book ratio, with a 4% dividend yield and an 11.69% return on equity. Accounting for its net cash position, its effective P/E drops to 6.3, making it undervalued at a market cap of 205 billion yen (about $600 million for the public float). This valuation could make it an appealing target for consolidation.

The real intrigue lies in a potential conflict of interest within Mitsubishi Corp’s structure. The parent company owns 50.1% of Mitsubishi Food, with the remaining shares held by business partners, institutions, and retail investors. Most of Mitsubishi Food’s board, including the CEO, consists of executives sent from Mitsubishi Corp, creating a governance setup that feels like an extension of the parent. Employee feedback on platforms like Openwork reveals low morale, rigid seniority, and limited upward mobility, underscoring the subsidiary’s dependence on its parent.

With Mitsubishi Corp’s mid-term plan emphasizing stronger coordination among group companies—including in the food sector, where it recently acquired Lawson—the timing could be right for a strategic move. Mitsubishi Corp’s relationship with Berkshire Hathaway is likely to grow closer and deeper, given Berkshire’s interest in the conglomerate. This partnership might encourage Mitsubishi Corp to streamline its operations and resolve governance tensions by launching a takeover bid (TOB) to make Mitsubishi Food a 100% subsidiary.

Such a move would align with Japan’s “equal treatment principle” for shareholders under company law, but it could also simplify Mitsubishi Corp’s strategy. With activist investors like Elliott Management pressuring competitors such as Sumitomo Corp, Mitsubishi Corp may see Berkshire as a sympathetic partner for its long-term capital allocation approach. By consolidating Mitsubishi Food, Mitsubishi Corp could unlock value in a company benefiting from Japan’s demographic trends while eliminating the complexities of a publicly listed subsidiary trading at a discount.

For Mitsubishi Corp, buying out the remaining public stake in Mitsubishi Food for around $600 million could be a rational strategic move—strengthening its position within the group and aligning with its broader goals, especially as it deepens ties with Berkshire Hathaway.

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