(Nov 21): What is Effissimo Capital Management Pte’s end game for Nissan Motor Co? 

The question has been swirling in Tokyo’s financial circles ever since a fund controlled by Effissimo took a 2.5% stake in the embattled carmaker. News of the investment sent Nissan’s shares soaring 13% on Nov 12, the biggest one-day gain in 15 years. 

While the Singapore-based hedge fund has stayed silent on its motivations, two dominant theories have emerged from analysts and other market watchers. The first is that Effissimo may simply view Nissan shares as too cheap to pass up: The company trades at around 0.25 times book value, the lowest among the top 500 listed Japanese companies and much lower than most other legacy automakers around the world.

The second theory involves Effissimo’s roughly 30% stake in Nissan Shatai Co. Some analysts speculate the hedge fund may be trying to pressure Nissan, which has a controlling 50% stake in the company, to buy out minority shareholders, giving Effissimo a nice pay day.  

“They may have judged that Nissan’s stock price has neared the bottom,” said Masatoshi Kikuchi, chief equity strategist at Mizuho Securities Co. “Effissimo is an activist investor but it is also a long-term deep value investor.”

Nissan slashed its earnings outlook earlier this month and said it would cut 9,000 jobs and a fifth of its manufacturing capacity in response to falling demand for its cars. Seiji Sugiura, a senior analyst at Tokai Tokyo Intelligence Laboratory Co. said a recovery in Nissan shares is possible, drawing a parallel to the stock price recovery after the company’s restructuring in 2019-2020.

Effissimo “might be looking for capital gains on a V-shaped recovery in earnings,” said Sugiura, who expects the carmaker to return to profit next financial year, while adding it’s another matter whether it will regain competitiveness over the longer term. Effissimo did not respond to requests for comment.

Additionally, Effissimo has a large amount of cash to put to work after the fund exited from its investment in electronics conglomerate Toshiba last year. The hedge fund won a major victory in Japan’s corporate governance history in 2021 when it called for a probe, which revealed mismanagement and government interference at the Japanese conglomerate. This led to the ouster of the firm’s chairman. 

“They still have a lot of cash from Toshiba and they may have seen Nissan as a potential target to build a large position,” said Kikuchi from Mizuho Securities.

Effissimo has owned a stake in Nissan Shatai since at least 2007. The company builds cars for its parent and has almost no other customers. Nissan Shatai’s listing on the stock market is an example of so-called parent/child listings, a practice that is fairly uncommon in developed markets outside of Japan. Investors have criticised the practice because of the risk that minority shareholders’ interest will be overshadowed by the parent company.  

Japanese activist fund Strategic Capital, which owns a 3.35% stake in Nissan Shatai, says the parent/child listing creates a conflict of interest. 

“Nissan Shatai has no independence from Nissan,” said Tsuyoshi Maruki, CEO of Strategic Capital, adding that the unit’s profit margin has been the worst among Japanese carmakers and car parts makers over the last 20 years while the company sells 98% of its cars to Nissan. “Nissan Shatai’s profits have been plundered by the parent company,” he said. 

Nissan is aware there may be negative evaluations of the subsidiary listing, but the company doesn’t have any concrete plan to change the capital structure, according to a spokesperson for the carmaker. A Nissan Shatai spokesperson said the company was aware of Maruki’s views but declined to comment further. 

Maruki’s fund also proposed a motion at Nissan Shatai’s annual general meeting in June to set up a committee to protect minority interests. 

It garnered support from 35.4% of shareholders — a result that would have been impossible without Effissimo throwing its weight behind the measure. 

Effissimo is typically discreet in commenting on management decisions at its holdings, including Kawasaki Kisen, Dai-ichi Life Holdings and Ricoh Co. The fund also rarely speaks to the press. This has left market participants gaming out its strategy. 

“There’s no doubt in my mind that one purpose of the stake is to try and help resolve this governance anomaly with Nissan Shatai,” said John Seagrim, a broker at CLSA in London.

Uploaded by Isabelle Francis