Murderer's Row

Who is on your cap table?

Recently, I came across an activist situation involving Helios Techno (6927.T), a Japanese small-cap company. While the quality of the business doesn’t appear to be exceptional unlike Sharingtechnology (profiled here) — its operations seem to revolve around manufacturing LEDs, printers, and related products — the setup is fascinating.

What stands out about Helios Techno is a failed takeover bid by RS Technology in June last year, which came at a significant 74% premium. However the deal fell through as three of the most prominent Japanese small-cap engagement funds emerged as major shareholders (likely to block the deal). Together, they now hold ~45% of the company.

It seems plausible that the activists’ endgame here is to initiate a proper auction process, maximizing value by selling the company to the highest bidder. On paper, Helios Techno’s balance sheet presents an enticing opportunity: 62% of its market cap is in cash, and another 6% is tied up in long-term investments.

A closer look at its financials reveals even more potential hidden value. According to a recent quarterly report, the company recorded a ¥1.65 billion gain from the sale of investment securities held by a consolidated subsidiary—an impressive 750% return. Per the quarterly report “222 million yen decrease in investment securities.” Makes you wonder what else is in their investment portfolio.

It begs the question: What other gems might be buried in their investment portfolio? The substantial cash position, coupled with these intriguing gains from securities sales, makes the company’s balance sheet feel like a treasure chest waiting to be unlocked.

Perhaps reacting to the #GaijinsAtTheGate the company has wisely issued a “Notice Regarding Changes in the Shareholder Return Policy and Revision to the Year-end Dividend Forecast” that goes:

“For the fiscal years ending in March 2025, 2026 and 2027, the policy is to aim for a consolidated dividend payout ratio of 100% from the standpoints of increasing shareholder returns and holding down the growth of equity. The dividend for each of these three fiscal years will not be less than 35 yen, which is the dividend for the fiscal year that ended in March 2024.

As needed, there may be stock repurchases and cancellations and other activities to use capital more efficiently. Helios Techno is committed to meeting the expectations of shareholders.”

Quoting Nippon Active Value Fund (Rising Sun Management in the cap table): “Every now and then, an opportunity comes along for us to act as Good Samaritans to the market. The Helios Techno trade is an old-fashioned arbitrage – the accumulation of a blocking minority to prevent the ‘take-under’ of the company at a ridiculously low price by RS Technology.”

I’ll be digging deeper.

Quick company overview here

Paraphrasing Kerrisdale this is not investment advice, and “is provided to you solely for your own entertainment purposes”.

We own a small position.

The title “A Murder of Activists” is coined by the highly entertaining John Seagrim at CLSA - and is “collective noun for crows”