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HONG KONG, April 1 (Reuters Breakingviews) - Activist firm Palliser Capital has provided the answer to a question few would have thought to ask: what does monosodium ​glutamate have to do with artificial intelligence? There’s no convoluted explanation here about recipes perfected through machine ‌learning—rather, it’s simply that Japan’s food-seasoning giant Ajinomoto is both the world’s first major producer of MSG and has a lock on a key AI-adjacent technology. And it’s part of an emerging trend in the $7.6 trillion market that global investors are taking advantage of.

Palliser estimates that Ajinomoto, founded in ​1907 to sell the newly invented flavor enhancer, has established a 95% market share in the industry-standard insulating polymer ​film used in the substrates of semiconductors produced by the likes of TSMC and Samsung. The ⁠activist fund founded by James Smith announced, opens new tab on Tuesday that it had become a top-25 shareholder in the firm and called for ​its target to hike by 30% the price it charges for Ajinomoto Build-up Film, or ABF.

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And since ABF accounts for less ​than 0.1% of the sales price for high-end AI chips being deployed in a worldwide data-center buildout boom, Palliser reckons the increase will have a negligible impact on end sales. That would also, it argues, help close a valuation gap between the just over 30 times earnings Ajinomoto’s stock ​trades at and the multiple of around 40 sported by its direct customers.

The Ajinomoto play comes on the heels of Palliser’s ​recent bet on Japanese toilet maker Toto (5332.T), opens new tab, whose advanced ceramics segment produces tools, opens new tabwidely used in chip manufacturing. The activist has called on both firms to ‌provide better ⁠disclosures on their respective chips-related businesses to improve their valuations. That could also help pave the way for either spinoffs or take-privates like the $3.2 billion deal announced on Tuesday between KKR (KKR.N), opens new tab and chemical group Taiyo (4626.T), opens new tab, the top supplier of ink for printing circuit boards.

This increasingly standardized strategy of activists and private equity groups in Japan is driven by the recognition that Japanese firms’ contribution ​to the AI boom can ​deliver stratospheric returns once fully ⁠appreciated. Bain Capital-backed Kioxia (285A.T), opens new tabrose tenfold in a year on anticipation of demand from data centers, setting up the PE firm for an historic payout if it can gracefully exit that position. That ​highlights a big advantage for activists, whose bets will pay off much sooner and leave ​them far less ⁠exposed if the AI boom goes bust.

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Context News

• Palliser Capital announced on March 31 that it had become a top-25 shareholder in Japanese seasoning maker Ajinomoto, which is estimated by the fund to hold a 95% global market share in an insulating ⁠polymer film ​used in semiconductor substrates.
• The activist fund founded by James Smith called on the ​company to raise prices on its Ajinomoto Build-up Film (ABF) by 30% to help close a valuation gap with its customers in substrate manufacturing, which include suppliers ​to firms such as TSMC and Samsung.

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Editing by Antony Currie; Production by Aditya Srivastav

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Hudson Lockett

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Hudson Lockett is the Asia Columnist for Reuters Breakingviews in Hong Kong. Before joining Reuters in 2024, Hudson spent seven years at the Financial Times, most recently serving as the paper’s Asia capital markets correspondent. Prior to this he was editor of China Economic Review in Shanghai. Hudson has degrees in Journalism and Japanese from The University of Texas. He speaks Chinese.

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