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Activists Target Hidden ONE Cash, Driving Discounted Value

Another standard-looking activist headline, but for those in the know, this situation runs a lot deeper. I’ll explain. Elliott is asking shipping firm Mitsui OS&K for better cash returns to shareholders. Quite a standard approach for activists everywhere, and Japan is no exception. Where this situation gets more interesting, is understanding a major source of profits for Mitsui OS&K is its equity accounted stake in Ocean Network Express. ONE is the result of the merger of MOSK’s container ship operations with those of K-Line and NYK Line. ONE sits on a tonne of cash that is off balance sheet for Mitsui OS&K. ONE’s payout policy has restricted the cash available to its shipping company shareholders. Where it gets even more interesting, is that another activist, Effissimo, owns almost 40% of K-line, and has for some time. That means that the majority of ONE is owned by two activist-influenced companies. So, Elliott’s investment is at a much greater discount to fair value than it appears at first glance. Likewise, the potential cash returns Mitsui OS&K could provide for shareholders could be very surprising to many. There is no substitute in investing for deep work and true market understanding. Elliott has likely looked through the complex off balance sheet structure to the true underlying value in this case. If you are a sophisticated investor and would like to learn more about the opportunity in Japan activism, visit the Senjin Capital website and sign up to our newsletter, or DM me.