Jeremy Warner's Outlook: Has Hohn bitten off more than he can chew?

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The Independent Online

It's a busy week for Christopher Hohn, head of the Children's Investment Fund (TCI). First it's off to Jacksonville, Florida, for what promises to be a bruising encounter with the board of the US railroad company CSX.

Mr Hohn is seeking five seats on the 12-strong CSX board, an action which has already prompted a raucous exchange of insults, legal action on both sides, and a congressional hearing.

Then to Tokyo, where Mr Hohn is engaged in a not dissimilar proxy fight with the Japanese power utility J-Power. Again, he wants the appointment of outside directors, as well as a big increase in the dividend.

America invented the shareholder activism that Mr Hohn specialises in, so to see the London-based hedge fund manager fighting so aggressively for shareholder rights and value in the land of the free is a bit like carrying coals to Newcastle.

As you might expect, he's not received the warmest of welcomes. Some highly derogatory things have been said about him in Congress and the courts. Mr Hohn presents himself as a champion of shareholder value against tired and uninspired, incumbent management. Opponents see him as an asset stripper, intent on undermining investment in American infrastructure and jobs for the sake of short-term gain.

Yet the encounter at CSX is just a stroll in the park compared with the point-blank rebuttal he's received in Japan. At CSX, Mr Hohn may ultimately be seen off, but his manoeuvring is a common enough spectacle in corporate America. As I say, corporate activism was born and bred in the USA. In Japan, on the other hand, it's virtually unknown, especially when practised by "alien" foreign hedge fund investors.

The Tokyo investment establishment think Mr Hohn completely mad to have taken on such a target, a highly regulated utility whose investment in new nuclear and coal-fired generating capacity ensures that for the next several years the company will be cash-flow negative. Even if J-Power thought it appropriate to pay the higher dividend demanded, it would struggle to do so, supporters claim.

What's more, the aggressiveness of Mr Hohn's attack has affronted Japanese national pride. If management might at one stage have felt inclined to listen, it has now dug its heels in. Meanwhile, the authorities have swung full square behind the J-Power board by banning Mr Hohn from further increasing his shareholding. No messing about there. National security in energy supply is made to take priority over the free market pursuit of shareholder value. With both CSX andJ-Power, Mr Hohn is under tremendous pressure to succeed, and not just from his investors either. His wife, Jamie Cooper-Hohn, relies on TCI's largesse to fund the couple's charitable foundation. The returns made by TCI support the foundations' ambitions in good works.

With CSX, Mr Hohn thus seems to have chosen an appropriate target. TCI is depicted by its critics as a latter-day train robber. Whether giving the proceeds to the poor justifies Mr Hohn's actions is for others to decide.

In any case, the spectacular success Mr Hohn achieved with his investments in both Deutsche Börse and ABN Amro are hard acts to follow. However talented an investment manager is, eventually his luck will always run out and his performance will become mediocre or worse.

Mr Hohn is extraordinarily sensitive to suggestions that he may be seriously under water with his J-Power stake. He insists that he's not, yet unless the position is uniquely well hedged, or there are mistakes in his filings with regulators, the evidence strongly suggests otherwise. In any case, for the time being Mr Hohn's position is that of a beached whale. If he loses on Thursday, as seems likely, he won't be able to move either forwards or backwards. Has Mr Hohn bitten off more than he can chew with the Japanese? We'll see.

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