RPT-BREAKINGVIEWS-Elliott opens new frontier with Japan nuclear bet

By Hudson Lockett

HONG KONG, Sept 11 (Reuters Breakingviews) - Nuclear power in Japan is, to put it lightly, a sensitive matter. So Elliott Management’s decision to take a stake in Kansai Electric Power 9503.T was always going to raise eyebrows—but that’s also what makes it compelling.

The activist investor has taken a stake of up to 5% in the $17 billion firm, one of Japan’s largest utility providers and nuclear power operators, according to someone familiar with the matter. Elliott is pushing the Osaka-based firm to boost investor returns and sell non-core assets it estimates are worth more than 2 trillion yen ($13.6 billion) - nearly as much as the company’s market capitalisation. Its shares jumped 5% on Wednesday after the Financial Times first reported the news.

Kansai Electric certainly ticks all the standard boxes for Japan activists: it trades at a price-to-book ratio of 0.7, well below the one-to-one level mandated by Tokyo’s stock exchange, and owns, by Elliott’s reckoning, roughly 1 trillion yen of real estate holdings that have nothing to do with its energy business.

The U.S. fund's other proposals make decent sense. It wants Kansai Electric to charge large customers more; raise dividends from 60 yen per share to about 100 yen, or roughly 30% of earnings; sell about 150 billion yen of non-core assets a year; and use proceeds to launch share buybacks and fund capex focused on the core energy business, as outlined by a person familiar with the fund’s thinking.

All this can help make the company's shares more attractive to wary investors. Capital outlays are rising, but its last attempt to tap equity markets for 500 billion yen in November was abysmal. The firm’s shares fell 18% on news of the deal, actual proceeds from which only totalled about 400 billion yen. And while it can be argued that the company is key to Japan’s energy security, it is still a listed company that needs funding from markets to build out its operations.

That it had not already been targeted is likely due to sensitivities over energy security and nuclear power. In 2011, the Fukushima nuclear plant meltdown prompted the shutdown of all 54 reactors nationwide. Two dozen have since come back online, with Kansai Electric running half of those. In July, it became the first operator in more than a decade to start the process of building a new reactor. The government is doubling down on the sector to reduce reliance on imported fossil fuels and exposure to volatile liquified natural gas prices.

Elliott's playbook for Kansai Electric recalls the one it has run at another utility, Tokyo Gas 9531.T, shares in which are up 50% since the fund took a similar-sized stake in November 2024. The activist investor’s latest move should prompt consideration of other untapped opportunities in other unconsidered sectors.

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CONTEXT NEWS

Activist investor Elliott Management said on September 10 it has taken a "significant" stake at Kansai Electric Power. The fund didn't elaborate, but it has become one of the Japanese utility's top three shareholders with a stake of up to 5%, according to someone familiar with the matter.

Elliott is pushing the power firm to increase investor returns in part by selling down more than 2 trillion yen in non-core assets, including over 1 trillion yen worth of property holdings, at a pace of about 150 billion yen a year.