Kadokawa, the Japanese firm behind the dark epic "Elden Ring" video game franchise, is now facing a nightmare of its own: an activist shareholder from Hong Kong who wants its chief executive gone, wielding a big stake and proxy advisor support.

The showdown will take place at Wednesday's annual general meeting and is being closely watched by investors in Japan, where activist shareholders have scored some significant wins as authorities pile pressure on companies to improve returns and corporate governance.

In one camp, there is Takeshi Natsuno, 61 and chief executive since 2021, but under attack for declining profitability.

He may have history on his side after garnering 90 percent of shareholder support at last year's annual general meeting.

Natsuno has also been backed by the company's board, which says removing him would create uncertainty while the company is trying to carry out reforms.

Natsuno is facing off against Hong Kong-based Oasis Management, one of the most active activist investors in Japan.

Oasis, which says it has been engaging with Kadokawa since 2020, is now the firm's largest shareholder with a 13.76 percent stake.

While Elden Ring – a collaboration between veteran game director Hidetaka Miyazaki and "Game of Thrones" author George R R Martin – has been a massive success, Natsuno has been criticised for failing to capitalise on it.

The 2022 action role-playing game is published by Kadokawa unit FromSoftware in Japan but by Bandai Namco overseas.

That arrangement has led to "material profit leakage," says Oasis, which is not alone in thinking it is time for a new person at the helm.

"While it may take time to find a replacement for Natsuno, this is a challenge worth accepting," Institutional Shareholder Services said in its proxy report.

Glass Lewis, another major proxy advisor, also recommends shareholders vote against the company's re-election proposal and in favour of the Oasis proposal, the activist said.

Though a drop in shareholder support from 90 percent to below 50 percent would be extraordinary, some market participants say it could happen given the firm's poor performance.

Kadokawa, a major force in manga, anime as well as video games, logged return on equity of just 0.5 percent last year compared to 9.4 percent in the year ended March 2022.

In May, it reported annual operating profit that undershot its forecast despite an earlier downward revision.

"Even without Oasis submitting a shareholder proposal, it has become a situation where institutional investors could easily make a no vote," said one market participant who was not authorised to speak to media and declined to be identified.

Another highly watched vote will be at Kyocera on Thursday.

Oasis, which has argued for the electronics manufacturer to divest unprofitable businesses, is now calling for chairman Goro Yamaguchi's resignation. (Reuters)



Edited by Tony Sabine