On Wednesday, Mitsubishi’s stock shot up to an all-time high as the company revealed a massive $3.4 billion repurchase plan sponsored by Warren Buffett.
Tokyo shares surged 9.7% to ¥2,782 after the Japanese conglomerate revealed its plan to repurchase up to ¥500 billion ($3.4 billion) in stock on Tuesday, according to a Financial Times story.
Because of this action, Mitsubishi’s stock has increased 23.5% so far this year.
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Calling it a “monster buyback” that “market participants were not expecting”, Jefferies analyst Thanh Ha Pham said the company had “another ¥500 billion excess cash that it could return to shareholders”.
“If the company does not find attractive acquisition targets, we think that management would release the excess cash back to shareholders to maintain and improve their capital efficiency, aiming for double-digit [return on equity],” the analyst said.
Pressure on companies to improve their market valuations
Activist investors have been increasing pressure on companies to improve their market valuations, drive better governance and boost share buybacks.
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The Tokyo Stock Exchange has called on companies to address low valuations through a “name and shame” list that highlights those resisting reform.
The pressure is yielding results. Listed Japanese companies announced a record ¥9.9 trillion of combined share buybacks in 2023, according to an analysis by Jefferies.
According to the report, Mitsubishi’s share price rally is a boon for Buffett’s Berkshire Hathaway, which has bet on Japan’s five biggest trading houses — century-old commodities specialists increasingly operating as global venture capital and private equity businesses.
Buffett first invested in Mitsui, Mitsubishi, Sumitomo, Marubeni and Itochu in 2020 and has since increased his stakes so that Berkshire now holds about 8% in each of them.
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Mitsubishi’s shares have roughly tripled in value since Berkshire Hathaway’s buy-in.
Mitsubishi also said on Tuesday that it had agreed to launch a $3.3 billion tender offer with mobile carrier KDDI for convenience store chain Lawson.
The trading house, which already owns half of Lawson, is betting that deepening labour shortages will change how the nation shops.
Lawson, Japan’s third-largest convenience store chain by number of shops after Seven & i Holdings and FamilyMart, has agreed to the offer.
