Elliott bets on Japanese nuclear power Kansai Electric becomes "new prey"

Nuclear energy has always been a sensitive issue in Japan, so the news of Elliott Management Corporation acquiring a stake in Kansai Electric Power has attracted a lot of attention. According to insiders, this radical investment firm has already acquired close to 5% of the shares of this Japanese utility and nuclear power operator, which has a market value of $17 billion. Elliott is urging the Osaka-headquartered Kansai Electric Power to increase investor returns and sell non-core assets valued at over 2 trillion yen (approximately $13.6 billion) - almost equal to its current market value, with about 1 trillion yen in real estate assets unrelated to the energy business. After the news was exposed, Kansai Electric Power's stock price surged 5% on Wednesday. Kansai Electric Power meets all the conditions that aggressive investors in Japan are concerned about: its price-to-book ratio is only 0.7, well below the 1:1 standard set by the Tokyo Stock Exchange; Elliott estimates that the company holds around 1 trillion yen in real estate assets unrelated to the energy business. The plan proposed by the fund is quite persuasive: raising prices for large customers, increasing dividends from 60 yen per share to around 100 yen (accounting for about 30% of earnings), selling around 150 billion yen of non-core assets each year, and using the proceeds for stock buybacks and capital expenditure in core energy businesses. These measures are aimed at enhancing the company's attractiveness to cautious investors. Although Kansai Electric Power is increasing capital expenditure, its attempt to raise 500 billion yen through the stock market in November last year ended in disaster - the stock price plummeted by 18% after the news came out, and the actual fundraising was only around 400 billion yen. As a key enterprise for Japan's energy security, Kansai Electric Power needs to expand its business through market financing, but the sensitivity of nuclear power and energy security has prevented it from being targeted by aggressive investors in the past. After the Fukushima nuclear accident in 2011, all 54 nuclear reactors in Japan were shut down, and now 24 have been restarted, with half of them operated by Kansai Electric Power. In July of this year, the company became the first operator to start operating a newly built nuclear reactor in over a decade. The Japanese government is increasing its investment in nuclear power to reduce its dependence on imported fossil fuels and the fluctuations in liquefied natural gas prices. Elliott's strategy for Kansai Electric Power is similar to its actions after acquiring shares in Tokyo Gas in November 2024 - since the fund purchased shares of a similar size, Tokyo Gas stock price has surged 50%. This latest move from the aggressive investor may lead the market to reconsider the opportunities that have not yet been explored in the energy and other sensitive industries.