(Bloomberg) -- If last year was any guide, 2024 is going to be another busy one for activist investors seeking to shake up corporate Japan.

Spurred by government and institutional pressure at companies to improve corporate governance and boost valuations, activist investors are pursuing more difficult and high-profile investments. Shareholder proposals, which also hit a peak last year, will probably reach a record when annual meetings roll around this summer.

“We are only at the beginning of a period of more pronounced activity,” said Peter Guenthardt, head of Asia-Pacific investment banking at Bank of America Corp. Activist investors “are back with a vengeance now, and the reason for that is because they do see the value and believe this time around the circumstances are very different.”

The total market value of Japanese companies targeted by activists more than doubled to $252 billion in 2023, from $117 billion the prior year, according to data compiled by Bloomberg. 

The majority of campaigns so far focus on boosting shareholder returns, such as getting small- to mid-cap businesses to issue more dividends. As they gain a stronger foothold, these investors are becoming more emboldened, and will probably pursue tougher strategies and tackle larger, more conservative companies. 

Here are some of the campaigns to watch this year:

Palliser Capital — Keisei Railway

London-based Palliser Capital disclosed in October it had built a 1.6% stake in Keisei Electric Railway Co. and had been speaking with management for more than two years. Railroad and transport companies have long been seen as difficult targets because of their conservative culture, and analysts have said the outcome of Palliser’s campaign could be a litmus test of whether activist investors can succeed with larger, tougher-to-crack businesses. 

“If Palliser had tried to do this five years ago, my guess is they’d have gotten absolutely nowhere,” said CLSA broker John Seagrim. “Where before Keisei would’ve basically ignored Palliser, it can’t anymore.”

Palliser’s proposals to Keisei include selling off part of its 22% ownership stake in Tokyo Disneyland operator Oriental Land Co. to a level where its market value can be recognized on the balance sheet, and re-investing the capital into the railway’s operations and business.

Keisei currently has no need to raise funds, a representative for the railway operator said, adding that it might eventually sell its stake, but not immediately. Palliser said it was confident in unlocking value at Keisei and that it will continue to work with management.

3D Investment Partners — Fuji Soft, Sapporo

The secretive Japanese-run hedge fund based in Singapore became well-known as a Toshiba Corp. investor during the troubled conglomerate’s privatization saga last year. Now, 3D’s most public investments are two very different businesses — software company Fuji Soft Inc. and beermaker Sapporo Holdings Ltd. — with a similar issue: large non-core real estate holdings that can be sold off to free up money for other uses.

Although 3D’s stakes were made public in 2022, it made significant progress on the campaigns last year, which will continue to play out in 2024. Sapporo in September established a committee to review options for its property business, while Fuji Soft said in November it was looking to shrink its real estate footprint.

“One of the more interesting things in 2024 will be more focus on hidden land assets,” Seagrim said. “3D has led the way on that with Fuji Soft and Sapporo.”

A Sapporo representative said the company was working to increase corporate value for shareholders. Fuji Soft and 3D didn’t respond to requests for comment.

ValueAct Capital — Recruit

ValueAct Capital’s campaign around Recruit Holdings Co., the company behind the world’s largest employment portal, is still in its early days but already has the drama of two well-known players. Recruit, a $69 billion company, has a global business through its ownership of Indeed.com and Glassdoor. San Francisco-based ValueAct has made a name for itself in Japan with a very public campaign at convenience store operator Seven & i Holdings Co., where it has continued to call for a strategic review after losing a fight to oust the chief executive. 

Although details now are thin over its Recruit investment, ValueAct said in November it had taken about a 1.1% stake and thinks the company is worth twice as much as what it had been trading at.

A representative for ValueAct did not respond to a request for comment. Recruit reiterated its prior comment, saying that the investment “is a recognition of the value and long-term potential of our company,” adding, “We look forward to having ValueAct as a shareholder and continued engagement.”

“We’ll see more and more activists coming to Japan who want to tackle companies with big market valuations,” said Tsuyoshi Maruki, founder of Tokyo-based activist fund Strategic Capital Inc., speaking generally about recent trends. 

Asset Value Investors — Nihon Kohden

London-based AVI took a stake in medical devices maker Nihon Kohden Corp. in late 2022, saying it had productive talks with the company and believed it could grow profits 14% annually, on average, over the next five years and boost its business overseas. This year could be pivotal for the investment, as Nihon Kohden is set to announce a new mid-term management plan in May that will test whether AVI’s engagement has paid off or spur it to step up its campaign. 

Adding to the plot is the disclosure last month that ValueAct, which had a successful campaign shaking up the board and business at medical products maker Olympus Corp., had also taken a stake in Nihon Kohden.

“We might have to explore whether to be more proactive if the mid-term plan disappoints,” said Daniel Lee, head of Japan research at AVI. A Nihon Kohden representative declined to comment about specific shareholders.

Ariake Capital — Chiba Kogyo Bank

Ariake Capital is relatively new to the activism scene in Japan. Founded by Goldman Sachs Group Inc. alumni and based in Tokyo, the investment fund is solely focused on unlocking value at Japan’s numerous regional banks — notorious for being inefficient with little prospects for growth, following years under the Bank of Japan’s negative interest-rate policy.

Pressure from the Tokyo Stock Exchange to boost price-to-book ratios and the possibility of a change in the BOJ’s monetary policy have increased investor interest in bank stocks, Ariake’s Chief Investment Officer Katsunori Tanaka said in an email, adding that the company has been friendly in its engagement with regional banks. “We intend to be proactive in making additional investments this year.”

One of Ariake’s recent stakes has focused on Chiba Kogyo Bank Ltd., asking the bank to improve employee incentives and revamp certain loan business segments. In November, Chiba Kogyo said it would review its mortgage operation, which Tanaka said was “just the first step” in a tweet.

A Chiba Kogyo spokesperson said the bank was building a relationship with Ariake, and did not consider the fund to be an activist investor.

Nippon Active Value Fund — Fuji Media

Nippon Active Value Fund and Dalton Investments, both overseen by investor Jamie Rosenwald, disclosed a joint 5% stake in broadcast company Fuji Media Holdings Inc. in December and said it may make proposals to the broadcaster in the future.

Japanese broadcasters make interesting but complex targets because they sit on assets like content intellectual property and large real estate holdings, and are subject to a law that prevents foreign investors from owning more than 20%. Fuji Media shares trade at around 0.4 times the book value of its assets.

Rosenwald declined to give more details on the investment. Fuji Media declined to comment on dialogue with specific investors.

--With assistance from Hideyuki Sano, Adam Kommel and Takahiko Hyuga.

(Updates with comment from Palliser Capital.)

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