We could see a wild deal over 4676 Fuji Media Holdings - half a trillion yen market cap company trading below 0.5x PBR and Holdco of Fuji TV - this year.
Recap
To provide a snapshot of Fuji Media metrics, the stock currently trades (as of 11:30 AM, January 27 Monday JST) at 0.46 trillion JPY market cap at 0.48 PBR, with ROE of 4.37% yielding 2.5%.
They make 39 billion JPY in pretax profit, of which about 20 billion derive from real estate ownership. Only 16 billion come from the media business. And because of the recent sex scandal, TV commercial revenue is draining fast.
So Fuji Media is like 2501 Sapporo - largely a real estate holding company. When I hear Fuji TV, I picture in my mind Tokyo Sankei Building - owned by Fuji TV standing on tract of land they procured from the Japanese government for cheap decades ago - now worth 1/3 of Fuji's market cap.
How do I know the value is 1/3? Fuji's affiliate REIT holding 2% of Tokyo Sankei Building is valued at 2.63 billion JPY (i.e., 100% = over 130 billion JPY).
Decade-Old Investment Thesis
With Fuji Media stock trading so low for so long, MBO has long been a no-brainer thesis among investors. Dalton - activist with 7% stake in Fuji - has advocated since spring last year for (i) delisting Fuji (ii) securitizing its real estates and (iii) ending cross-shareholdings.
But no one took those ideas seriously, as Japan's Broadcast Law limits foreign ownership to 20%, etc. Moreover, the Ministry of Internal Affairs gets to review any proposed ownership change over broadcast license. Public interest companies are simply hard to crack for activists.
"Emperor" of Fuji Media
But this time and perhaps this time only, things are different due to the sex scandal. Dalton now faces Fuji TV from a much higher moral ground.
Everyone's focus now is on ending the 40+ year rule by Hisashi Hieda - the "Emperor" of Fuji TV who de facto controls the entire group.
(Fun fact: Speaking of high moral ground, it is said Hieda himself originally assumed power at Fuji via 1992 coup he instigated from within Fuji to oust the founding family).
I predict that Fuji TV President Koichi Minato will resign today (January 27). I also predict that it would mean nothing to the current situation, absent fundamental change to the Hieda rule.
This is not an ordinary scandal isolated in the business world. Some powerful politicians are under stress. For example, Tokyo Governor will be repeatedly asked why Tokyo still retains Hieda as chairman of Tokyo History/Culture Foundation.
I am not going to get into any more details on politicians. But with a scandal of this nature, it's easy to imagine some people less excited about seeing the pandora's box being opened so publicly (Epstein). The tabloid media and SNS-powered citizen journalists are all becoming private detectives ready to uncover & spread what exactly happened and who else is involved.
What Happens Next?
The inertia toward fundamental deal-making is developing fast. First, the Jan 17 press conference was a disaster. It closed doors to many journalists and TV camera was disallowed. President Minato dodged many questions.
Second, although Fuji TV Board commissioned a Third Party Investigation, the investigation report deadline has been set at the end of March. This infuriated the public and the intellectuals alike as it obviated the Fuji management's intent to close the matter in March at all cost so that new TV shows can run on schedule from April 1 - start of Japan's new fiscal year.
The scandal is about Fuji TV at the top management level having condoned and abetted sexual molestation by big TV personality(ies?) of its own employees for YEARS. Hard to imagine investigation of that magnitude can begin and conclude within a matter of 65 days.
Fuji management has put themselves in a tough spot. If Third Party Investigation delivered result in 65 days with some token penalty recommendations and allowed the status quo, the social media would explode. If the investigation gets prolonged beyond March, Fuji will further miss its TV commercial revenue.
Due to the poor handling of situation, the optics for Fuji management are going from bad to worse.
Activist as Crusaders
It is against this backdrop that come activists. Horiemon - once jailed for market manipulation of Fuji TV parent stock and has since grown to be a huge influencer of Japan, has recently bought some Fuji stocks.
Horiemon is a vocal advocate for Fuji TV to pivot to Amazon Prime/Netflix - type "consumer facing" monetize model. With the content production capability of Fuji TV, Fuji should monetize individual viewers directly and end the legacy practice of courting TV commercial sponsors, he says.
So how would a deal happen from here? Some commentators said a proxy fight is unlikely for the June shareholder meeting because, in order to submit a shareholder proposal under Japanese law, the shareholder needs to have held 1% or more shares for 6 month on a continuous basis. With the sex scandal uncovered only a month ago, it is too late for investors to buy shares now and hope to start a proxy fight.
But that is a complete misunderstanding. Dalton, for one, has held over 1% much longer than 6 months. In addition, 1%-for-6-month threshold can be met by any number of shareholders COMBINED, which is rather easy to accomplish in the SNS era over scandal intriguing everyday people.
You don't believe that corporate democracy in Japan can be so vibrant? I once launched an activist campaign myself as a solo retail shareholder and, holding mere 2.5% of outstanding shares, won proxy fight by appx 7:3 ratio thru active use of SNS to replace the ENTIRE board of a publicly traded company. It was a Japanese GameStop moment of 7 thousand retail shareholders uniting against a handful of entrenched Board members.
So yes, it is possible when the cause is strong enough.
5 Reasons Why I Predict a Wild Deal over 4676 Fuji Media
I expect "Emperor" Hieda and his entourage to be cornered by multiple shareholder proposals and proxy solicitations. As quickly as 3382 Seven Eleven has put together an MBO scheme in the face a Canadian takeover bid, Fuji management, in full coordination with the government bureaucrats, could craft a TOB deal for Fuji Media Holdings with a fresh capital structure. Stated differently, anything less than that, including reshuffling of Board members, would likely be a disappointment for investors & TV commercial sponsors & the general public.
With (1) a scandal so immoral,
(2) the stake for some big personalities & political actors so high
(3) the incumbents handling situation so poorly
(4) the activists getting more and more vocal and intercepting the management from so high a moral ground, and
(5) investment thesis so clear,
If there is any time to unlock the value of Fuji TV, now is the time.
NIA/DYOD. This analysis has been posted not as investment advice, but as an entertaining read of how powerful corporate and political interests could operate to enable an otherwise unthinkable deal in Japan.
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