Elliott builds large stake in Japan trading firm Sumitomo

NEW YORK: Elliott Management Corp has built a “large” stake in Sumitomo Corp, one of Warren Buffett’s favourite Japanese trading houses, according to a person familiar with the matter.

The size of the activist group’s investment is around “several 10s of billions of yen”, the person said, asking not to be identified because the transaction hasn’t been publicly disclosed. Every 10 billion yen (US$63mil) investment is equivalent to a 0.2% stake in Sumitomo, based on Friday’s closing share price of 3,909 yen.

Japan is one of the hottest markets for activist investing, with the government and institutions such as the Tokyo Stock Exchange asking companies to better manage balance sheets and retool business strategies to boost shareholder returns.

Elliott, founded by billionaire Paul Singer, recently focused on developer Mitsui Fudosan Co, after previously targeting Toshiba Corp, SoftBank Group Corp and Dai Nippon Printing Co.

A representative for Elliott declined to comment, while Sumitomo couldn’t immediately provide Bloomberg with confirmation of the investment.

Japanese trading houses’ shares have surged to records since Buffett said a year ago that he would be raising his holdings in them. In February, he said in his letter to investors that the companies follow shareholder-friendly policies that are “superior” to those practiced in the United States.

Sumitomo shares reached their highest ever last week, and have climbed 27% this year.

Berkshire Hathaway Inc holds about 8.3% of Sumitomo, according to data compiled by Bloomberg. It also invests in other trading firms including Mitsubishi Corp, Mitsui & Co, Itochu Corp and Marubeni Corp, and has said it hopes to eventually own 9.9% of each.

Read more: Berkshire’s Yen Bond Sale Gives Buffett More Cash to Buy Stocks

Sumitomo is Japan’s fourth largest trading firm with a market capitalisation of 4.8 trillion yen, data compiled by Bloomberg showed.

It has a price-to-book ratio of 1.1 and a forward 12-month price-to-earnings ratio of 9.5, both the lowest among its peers.

Sumitomo’s financial 2023 earnings are due today, when the company is also scheduled to reveal its medium-term business plan. — Bloomberg