At the start of the month, we reported on Square Enix suddenly facing an unexpected threat in a new investor. Today, Dr. Serkan Toto shares an update and more insight in that situation.
Dr. Toto is a consultant and analyst in the video game industry for the past 15 years. He helped share the news of a company called 3D Investment Partners acquiring a 5.47 % stake in Square Enix at the end of April, which we then reported at the start of May. Dr. Toto is uniquely positioned to talk about this situation because he works in both Singapore and Japan. While Square Enix is a Japanese game company, 3D Investment Partners is based in Singapore and has a Japanese CEO in Kanya Hasegawa.
To get back to the initial acquisition, Automaton had a unique perspective on 3D Investment Partners as well. In their report on the initial investment, they referred to the company as “infamous,” with a company head referring to their demands as “heart-wrenchingly extreme.” But then, this may raise a question for some of you. 3D Investment Partners is often referred to as an activist investor, but what even is an activist investor?
Dr. Toto made a new YouTube video where he explains the situation. As he explained it, an activist investor is:
…typically a financial institution, a hedge fund for example, or a comparable firm, that builds up stake in a publicly traded company in order to push that company later, for often very significant changes
Dr. Toto went on to say those changes could come in the form of changing the people in management, or telling them what business strategies to do. Dr. Toto also explained that these companies have to disclose they are acquiring these stakes and for this purpose. And that’s because we are now decades away from when Carl Icahn was at his peak of unchecked and damaging investor activism, back when it was called by a different name: corporate raiding.
If Icahn’s name is forever connected to the closure of an entire airline company in TWA, today’s activist investors are limited by corporate rules from doing what he could. So 3D Investment Partners isn’t potentially that harmful, but they have still become notorious for strong-arming the companies they get into.
Dr. Toto shared the example of Japanese IT company Fuji Soft. 3D Investment Partners pressured Fuji with frequent proposals to increase shareholder value, such as buying back their stocks. 3D also loved to find private equity companies to sell Fuji too. Eventually, they sided with one such company, KKR, in their bidding war vs. Bain Capital, so that KKR could complete their acquisition of Fuji Soft. As Dr. Toto demonstrated, 3D Investment managed to keep Fuji’s stock price going up throughout this process until selling out to KKR.
Dr. Toto revealed that as of May 22, 3D Investment Partners managed to raise their stake to 7.73 % ownership in Square Enix. Interestingly, he then revealed he believes 3D has 0 % chance to change Square Enix at all.
For one, 3D Investment Partners’ 7.73 % shares is not big enough that Square would be forced to enact their proposals. 3D also has no experience with video game companies. Activist investors (or if you want, corporate raiders) generally have a harder time in the entertainment industry, which is itself turbulent by its very nature.
And, since we brought up Icahn earlier, we will now bring up one of Icahn’s rare embarrassments; the time he and Ron Perelman squared off to take control of Marvel Comics in the 1990s. In the end, both lost out to Toy Biz owners Isaac Perlmutter and Avi Arad, two pivotal figures in making the once bankrupt comic book company become one of the biggest media franchises on the planet.
Funnily enough, Dr. Toto also brought up the fact that Square Enix was already dealing with an activist investor, in Longchamp SICAV/Dalton Investments. Square Enix has to engage with 3D Investment Partners the way they do with Longchamp now, but that engagement can come in the form of simply rejecting their proposals.
If something changes in this situation that could, for example, leave Square Enix vulnerable to a buyout, we’re sure we’ll be hearing from Dr. Toto about it. But for now, we highly recommend you watch his video explaining the current situation with Square Enix below.
