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Japanese stories rarely give you clean-cut heroes and villains. There is an old philosophical phrase 善悪相即 (zen’aku sōsoku), roughly translated as “good and evil are two sides of the same coin”, that captures this resistance to tidy moral labels. The same actor can be steward and predator, reformer and opportunist, depending on incentives and timing.
There is a microcosm of this within Japan’s governance revolution.
The Tokyo Stock Exchange has forced a long-overdue reckoning on sub-1.0x P/B, idle cash, and capital inefficiency. Activism is no longer taboo. Foreign capital is returning. The public narrative is that Japan is improving.
And yet a darker trade is flourishing inside that improvement: the underpriced management buyout.
For years, management buyouts in Japan were relatively rare, numbering at roughly 10 per year since the mid-2000s. In recent years we see a breakout from this trend. Japan recorded 18 MBOs in 2024 and 32 in 2025, a record pace of management-led privatizations. The surge is not random. It is a rational response to a market where many companies still trade below 0.5x book value while sitting on cash, real estate, and quietly valuable operating franchises. For incumbent management, that discount can look less like a failure to fix and more like an opportunity to capture.
But here is the part that should be said out loud. In many of these cases, the undervaluation was not an accident of fate. It was allowed, sometimes effectively engineered, by the very people now claiming that fixing it justifies going private. Years of weak capital allocation, stale strategy, poor disclosure, and indifference to shareholder returns create the mispricing. Then, when reforms and activism finally begin to close the gap, management turns around and tries to buy the company before the re-rating arrives. That is what makes it deplorable. The same hands that refused to do the work in public now reach for the reward in private.
The trick begins with language. The offer is framed as a “premium” of 20-30% or more over a depressed share price. The narrative is generosity. The reality is arithmetic. A 30% premium on a stock at 0.5x book is still only 0.65x book. Shareholders are being forced out below net assets even before considering earnings power or hidden value, and being told that they are fortunate to get such an offer.
Then comes the structure that makes it feel like stealing. Most management teams are not buying these companies with personal wealth. They are using leverage in the form of bank financing that demands a clean path to 100% ownership. As long as minority shareholders remain, the company’s assets cannot be cleanly pledged as collateral for the acquisition debt. Once minority shareholders are removed, the balance sheet (cash, factories, IP, real estate) can all be pledged to secure the loan that funded the buyout. So, the playbook is to remove the owners and pledge what they used to own to finance the transaction that removed them.
It is legally structured. However, it is morally ambiguous in precisely the way 善悪相即 (zen’aku sōsoku) captures. The same corporate form that can enable transformation can also enable a getaway.
Another reflection of this duality of good and evil is seen in the perception of activist investors. They were once painted as uncouth, foreign, loud, and disruptive. Yet in this new MBO era they have increasingly become the de facto champions of minority shareholders. They are the only participants willing to say, publicly, that management’s generous premium may not be what it seems, and they are the only participants willing to take bold steps to prevent management from committing a blatant injustice to shareholders.
Recent fights show how pressure changes outcomes. Soft99, Art Vivant, and Wavelock became rare, high-profile failures after activists attacked valuation narratives and took actions that forced daylight into processes designed to run quietly. Pacific Industrial saw intense shareholder pushback which helped to drive materially improved terms. And Mandom became a live demonstration of the leverage activists can utilize. A tender that began at ¥1,960 ultimately moved to ¥3,105 after competing interest emerged and sustained opposition forced repeated amendments requiring filings and time extensions that forced a repricing.
Even the bluest chip Toyota is no longer immune. The attempted take-private of Toyota Industries has faced open resistance and required extensions, a signal that the age of effortless insider pricing is ending.
Management buyouts are not inherently wrong. Some are legitimate tools for rebuilding companies away from quarterly noise. But when insiders first allow undervaluation to fester and then attempt to privatize the re-rating through a squeeze-out priced off a depressed quote, financed by the company’s own balance sheet, the transaction stops looking like stewardship and starts looking more like a raid.
Japan’s governance revolution is real. So is its shadow. Until Japan’s take-private discipline and minority protections converge consistently with the tougher norms seen in other major markets, this 善悪相即 (zen’aku sōsoku) ambiguity will persist with polite language on the surface and hard truth of arithmetic that tells a different story underneath. A bull market can hide many things, but it is up to shareholders to stay vigilant to make sure that injustices do not get lost in the euphoria.
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