Business | Markets
Japan's firms in buy-back spree after slump
The stock market slump has driven Japanese companies to buy back their own shares in near-record numbers, in spite of their reputation for hoarding investors' cash.
- By Robin Harding/Financial Times
- Published: 23:35 January 5, 2009
Tokyo: The stock market slump has driven Japanese companies to buy back their own shares in near-record numbers, in spite of their reputation for hoarding investors' cash.
There were buy-backs at 587 listed companies last year, according to figures from data provider I-N Information Systems - a 33 per cent increase on 2007.
And while the value of these buy-backs fell by 17 per cent, this was less than the 42 per cent fall in the Topix index - taking repurchases close to a record level, relative to the total value of Japan's stock market.
These figures suggest that Japanese managers are paying attention to investors who criticise them for holding on to cash rather than returning it to shareholders. Some managers, however, may simply feel their share price is too low.
Buy-backs, which can increase returns for investors by reducing cash on the balance sheet and cutting the number of shares in issue, are a common demand of activist funds, such as Steel Partners of the US.
Last month, Steel Partners called on Brother Industries, a maker of printers and sewing machines in which it has a 10 per cent stake, to buy back almost a third of its outstanding shares.
"Other Japanese companies have taken advantage of current market weakness to buy back shares at favourable prices and we believe Brother should do likewise," said Warren Lichtenstein of Steel Partners.
As the Topix index slumped in October and November 2008, taking the share price of many companies below the value of their assets, there was a rush to launch buy-backs.
Canon, one of Japan's largest corporations, spent 50 billion yen (Dh1.97 billion) and bought back more than 1 per cent of its outstanding equity during the first week of November. Okuma, a maker of machine tools, bought back 1.2 per cent of its shares at a discount to book value of almost 30 per cent.
The largest single buy-back was by Mitsubishi UFJ Financial Group, which acquired 239 billion yen of stock from its subsidiaries in July. The bank then sold treasury shares as part of the 990 billion yen fundraising that followed its purchase of a Morgan Stanley stake.
The pharmaceutical, telecom and technology sectors were also big buyers of their own shares. Toyota, Japan's biggest company, spent 195 billion yen on buy-backs.
However, analysts expect buy-backs to be limited this year as the economic downturn prompts banks and other companies to hold on to cash.
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