Palliser targets Japanese rail company Keisei

By Svea Herbst-Bayliss

NEW YORK/TOKYO (Reuters) -Palliser Capital, which owns a 1.6% stake in Japanese rail operator Keisei Electric Railway, on Tuesday said the company is trading at a large discount and has room to release value.

The company, which runs one of the main lines from Narita airport into the center of Tokyo, currently trades at a “huge 43% discount to intrinsic value”, Palliser’s founder and chief investment officer James Smith said at the 13D Monitor Active Passive Investment Summit.

There is a “unique opportunity to release $4.5 billion in latent value and catalyze future growth,” he said.

Keisei shares surged as much as 6.5% in Tokyo trading on Wednesday, leading peers on the Nikkei index in the morning session.

Smith will meet with the company’s top management next month and has already held some 12 meetings over the last two years.

Keisei earlier declined to comment.

Palliser’s efforts come at a time foreign investors are taking new stakes in Japan and pushing companies to improve governance and boost value for shareholders.

Smith said the root cause of Keisei’s value gap is its disproportionate stake in its leisure and tourism subsidiary Oriental Land Co (OLC), the operator of Tokyo Disneyland, which is worth over $8 billion, accounting for 80% of Keisei’s intrinsic value.

But Smith, who spent years working for Elliott Investment Management and spent time in Asia, said one of the most important points of investments in Japan is to be patient and polite.

Many activist investors hope for speedier improvements but Smith cautioned that expectations for investments in Japan must be adjusted.

He said three steps would go a long way to unleashing value. He suggested right-sizing the OLC business to below 15% and resolving the OLC accounting distortion. Also he said the company needs to fix its weak corporate governance.

OLC was among the biggest losers on the Nikkei, falling as much as 2.8%.

(Reporting by Svea Herbst-Bayliss; Additional reporting by Rocky Swift in Tokyo; Editing by Josie Kao and Miral Fahmy)