Fanuc bows to Loeb pressure and pledges dividend boost

Shareholder activists scored their biggest victory in Japan yet after robotmaker Fanuc promised to double its dividend payout ratio following pressure from US investor Daniel Loeb.

Fanuc said on Monday that it would return 60 per cent of net profit to shareholders through dividends, compared with its previous 30 per cent. It would also carry out "flexible" share buybacks with a further 20 per cent of net profit.

The transition at one of Japan's most reclusive companies comes just two months after Mr Loeb's hedge fund disclosed its stake, saying the company needed to use its cash pile to buy back shares.

"We no longer need to build up our internal reserves," Yoshiharu Inaba, Fanuc's chief executive, told the Financial Times.

With its cash and cash equivalents totalling nearly Y1tn ($8.4bn) at the end of March, Mr Inaba said a dividend payout ratio of 60 per cent would still leave Y400bn to invest for future growth.

Mr Inaba denied the new shareholder-friendly policy was a result of Mr Loeb's pressure. Instead, he said the decision was based on discussions with about 20 investors in the US, UK and Japan after the company established a new division to communicate with shareholders.

"It takes so much of our time," Mr Inaba complained. "But we just wanted to avoid the market having a wrong image of the company, which would hurt our business."

Mr Inaba also said he felt compelled to open up because he was afraid the company was being seen as a "yellow cult group", a reference to the colour of its robots and its workers dressed in yellow.

The company will increase the number of its outside directors to three from one.

Fanuc's shift - echoing changes at Hitachi, Sony and trading house Mitsui - was driven by a broader corporate governance overhaul orchestrated by Shinzo Abe, Japan's prime minister. Hopes that Japanese companies were serious about boosting shareholder returns have helped lift the Nikkei Stock Average to the 20,000 level for the first time in 15 years.

Activist shareholders have had a mostly dismal record in Japan, dating back to US investor T. Boone Pickens' foiled 1989 bid to win seats on the board of a Toyota supplier. More recently, Mr Loeb failed to convince Sony to spin off part of its entertainment arm.

Still, Mr Inaba called on shareholders to take "a long-term view" on performance. "Our objective is not to make our company bigger but to ensure that it exits in a healthy form for the permanent future," he said.

Fanuc reported that its net profit increased 87 per cent from a year earlier to Y207.6bn for the fiscal year ended in March.

But the group predicts its net profit to fall 7.9 per cent for the current business year as it expects a slowdown in orders for Robodrill machine tools, used to make metal cases for Apple's iPhones and other smartphones.

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