Loeb Fund buys Suzuki stakes

The Pak Banker - - COMPANIES/BOSS -

Suzuki Mo­tor Corp. rose to a record in Tokyo trad­ing af­ter the hedge fund run by Daniel Loeb said it had ac­quired a stake in the car­maker, pre­dict­ing a pos­i­tive end to a years-long dis­pute with Volk­swa­gen AG.

An al­most five-year ar­bi­tra­tion be­tween Suzuki and Volk­swa­gen has "par­a­lyzed" the Ja­panese com­pany, with a res­o­lu­tion in sight, Loeb's Third Point LLC said in a let­ter to in­vestors dated July 31. Its Maruti Suzuki In­dia Ltd. unit also en­joys a "sus­tain­able scale-based ad­van­tage" over its com­peti­tors and has "sig­nif­i­cant room" to ex­pand its profit mar­gins, the New York-based fund said.

"The com­pany's great­est as­set is its low-cost man­u­fac­tur­ing process for ve­hi­cles for the emerg­ing mar­ket con­sumer," Third Point said in the let­ter, with­out dis­clos­ing the size of the stake. "An over­hang from a pro­tracted lit­i­ga­tion with Volk­swa­gen has re­sulted in sig­nif­i­cant bal­ance sheet in­ef­fi­ciency and cre­ated an at­trac­tively val­ued in­vest­ment op­por­tu­nity."

The stake in Suzuki marks the third in­vest­ment that the bil­lion­aire Loeb has made in the last two years at a ma­jor mem­ber of Ja­pan Inc., mak­ing him one of the high­est-pro­file ex­am­ples of the na­tion's wave of share­holder ac­tivism. The ac­tiv­ity has been spurred on by Prime Min­is­ter Shinzo Abe, who has bet that shak­ing up Ja­pan's cozy cor­po­rate cul­ture will help rein­vig­o­rate its stag­nant econ­omy.

Suzuki shares climbed 3.4 per­cent to a record in Tokyo trad­ing, while Maruti Suzuki climbed 2.2 per­cent as of 12:41 p.m. in Mum­bai, also headed for a record close.

Suzuki had been run for 37 years by Osamu Suzuki, who at the end of June ceded the role of pres­i­dent to his son Toshi­hiro. Osamu, 85, had been the long­est-serv­ing head of any ma­jor global au­tomaker and con­tin­ues to be re­spon­si­ble for fi­nal­iz­ing ar­bi­tra­tion with Volk­swa­gen that be­gan in Novem­ber 2011.

The two have ac­cused one another of breach­ing an agree­ment, which was meant to sup­ply Suzuki with tech­nol­ogy and pro­vide Volk­swa­gen with wider ac­cess In­dian car mar­ket.

The Ja­panese car­maker in June said ar­bi­tra­tion pro­ceed­ings with Volk­swa­gen have been con­cluded, and the com­pa­nies are now await­ing the rul­ing.

Suzuki has enough cash to buy back the 19.9 per­cent stake held by Volk­swa­gen if it suc­ceeds in end­ing the failed part­ner­ship, or will find a way to work to­gether with share­hold­ers if the Ger­man car­maker is able to keep its in­vest­ment, the New York-based fund said.

Ei Mochizuki, a Suzuki spokesman, de­clined to com­ment on Third Point's stake, say­ing the com­pany doesn't dis­cuss in­di­vid­ual in­vestors. Suzuki plans to keep its sus­tain­able growth and im­prove its cor­po­rate value through con­struc­tive com­mu­ni­ca­tion with in­vestors, he said.

Suzuki's han­dling of the con­flict with Volk­swa­gen is the lone point of crit­i­cism made by Third Point. Suzuki's as­sets in In­dia are worth more than the en­tire com­pany's mar­ket cap­i­tal­iza­tion, and it re­ceives a 5.5 per­cent roy­alty stream from Maruti that trans­lates to $500 mil­lion an­nu­ally, the fund said in its let­ter. Suzuki con­firmed Third Point's num­bers were broadly cor­rect at a brief­ing for its first-quar­ter re­sults.

Maruti Suzuki is in­tro­duc­ing new mod­els in higher-end seg­ments and us­ing a dom­i­nant dealer ser­vice net­work to in­crease mar­ket share in In­dia, which is ben­e­fit­ing from Prime Min­is­ter Naren­dra Modi's re­form and in­fra­struc­ture in­vest­ment, Third Point said.

Even though com­pe­ti­tion is get­ting tougher in In­dia, Suzuki is pos­i­tive about fu­ture de­mand in the coun­try be­cause the Modi gov­ern­ment is help­ing boost de­mand for en­try- level ve­hi­cles, Man­ag­ing Of­fi­cer Masahiko Na­gao told re­porters in Tokyo on Mon­day.

Asked how Suzuki plans to in­ter­act with Loeb, who has a stated aim to use mi­nor­ity share­hold­ing to ob­tain board seats, Na­gao said that the com­pany should be able to im­prove cor­po­rate value by fol­low­ing its mid-term plan.

Loeb didn't im­me­di­ately re­spond to an e-mail seek­ing com­ment sent out­side reg­u­lar busi­ness hours.

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