February 7, 2020 / 3:34 AM / 17 days ago

Breakingviews - Activist swing at Japan arena puts buyers on deck

A man wearing traditional kimono costume waits in front of the venue of a Holy Mass by Pope Francis at the Tokyo Dome, in Tokyo, Japan, November 25, 2019. REUTERS/Kim Kyung-Hoon

HONG KONG (Reuters Breakingviews) - The big swings at Tokyo Dome have moved from the baseball field to the owner’s box. A slugging investor is taking a crack at the operator of the stadium the Yomiuri Giants call home. Some of the operational and corporate governance improvements being proposed should be home runs. If the company digs in, though, it could face some fast pitches from private equity.

Japan’s first covered arena cost some $270 million to build and opened its gates in 1988 with a Mike Tyson title fight and Mick Jagger’s debut solo tour. Some 40 years later, Oasis, the activist fund manager run by Seth Fischer, has lifted its stake in Tokyo Dome to nearly 10%, arguing management has let the venue, and its adjacent hotel and theme park, weather like an ageing rock star.

The Giants are a big draw in baseball-obsessed Japan, and pop acts still sell out the joint. Pope Francis celebrated mass at the Tokyo Dome in November with 55,000 attendees. And yet financial performance has been decidedly less glitzy, which the $870 million company partly attributes to the cost of implementing a five-year strategic plan in 2016. It has delivered a paltry annualised total shareholder return of less than 1% over the last five years, underperforming Japan’s benchmark index.

Tokyo Dome has left money on the table compared to international rivals. It could sell lucrative naming rights, attract additional sponsors by installing digital screens and hawk more beer by preventing fans from bringing in their own. Reasonable minds can quibble over the exact returns such upgrades and others might produce, but Oasis reckons they would more than double the stock price. The company’s stodgy board also could use greater independence and diversity.

If directors remain stubborn, the battle might attract buyout shops hungrily prowling for turnaround possibilities in Japan. They would have hurdles to overcome. Although borrowing rates are ultra-cheap, Tokyo Dome already carries over $1 billion in net debt. A long-term deal to keep the Giants in place would also be needed. Private equity also tends to prefer working amiably with existing management. On balance, though, Tokyo Dome would benefit from heavy financial hitters.    

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