Activist trust Nippon Active Value (NAVF ) has escalated its campaign at Aska Pharmaceutical with the publication of a sharply worded letter calling out attempts to cap its holding and demanding a management buyout (MBO).

Signed off by Paul ffolkes Davis, chairman of Rising Sun Management (RSM), investment adviser to the trust, the note criticised Aska for its ‘out of the blue’ request for the trust to stop building its stake and subsequent introduction of a ‘policy for responding to large-scale purchase actions’, kicking in at 22%.

Refinitiv data puts NAVF as the second largest shareholder with a stake of 8.3%. However, it acts as part of a ‘concert party’ that includes top shareholder Dalton Investments, which has a stake of 9.3% in the trust. Dalton was co-founded by James Rosenwald, who runs RSM. 

The connected group of shareholders also includes NAVF Select, a buyout fund managed by Dalton Investments, which owns 2.8% of Aska. 

Combined, the concert party owns just shy of the 22% ‘cap’, owning 20.4% of the pharmaceutical group, which specialises in female healthcare.

RSM has built its stake in Aska gradually over two years of ownership and ffolkes Davis described the ‘unilateral’ action as ‘unsupportable, indefensible and deeply offensive’, in a letter published on Monday afternoon.

He said Aska was concerned about ‘excessive influence’ by one shareholder, stifling ‘diverse views’, but rebutted this opinion as built on a fundamental misunderstanding of capital markets, claiming ‘shareholder democracy’ relies upon equal voting rights per share. 

The plan to prevent the concert party from gaining further influence at the company was addressed by Aska president Sohta Yamaguchi at a meeting with RSM, which prompted a forthright take-down by the investment manager.

Aska’s justification for the cap was that ‘since you are a fund, you will eventually exit’ and this poses a threat the share price, said ffolkes Davis in the letter.

He said the idea that the fund would rapidly sell a large number of shares was not only ‘self-destructive’ for the fund but the ‘fantasy concerns’ showed the Aska leadership as ‘naïve’ with ‘bizarre ideas’.

‘We really do not understand what you fear most, our buying or selling,’ said ffolkes Davis in the letter.

The £378m Japan trust has a history of quickly building up stakes in undervalued smaller companies and exiting at a premium, a strategy for which ongoing corporate governance reforms and chronic undervaluation in the region have provided fertile ground. 

One example which garnered attention was with textile dying company Sakai Ovex in 2021, when the trust successfully realised more than double its original investment, having built up a 6% stake and successfully convinced management to go private. 

In a similar move, RSM said it would back a buyout of Aska by management and the founding Yamaguchi family, which owns a 5% stake.

‘Given your extraordinarily inappropriate behaviour in trying to target and disenfranchise your largest shareholder, in other others words, your largest owner, we will try to make this easy for you,’ said ffolkes Davis.

‘We will support and advocate a management buyout of the entire company at [a redacted price], as we believe the fundamental worth of the company easily justifies this valuation.’

According to data from Deutsche Numis, NAVF has beaten the MSCI Japan Smaller Companies index over one, three and five years. Its share price total return year to date is 10.1% versus 6% for the index.