HONG KONG: Suzuki Motor's capital structure is due a tune-up. The Japanese car-maker has amassed a huge cash pile during a long feud with 19.9 per cent owner Volkswagen.

Now arbitrators in London have told the German group to sell, and Suzuki wants to buy the $3.8 billion stake back. That would mean a big boost to earnings - and hearten Suzuki's hedge-fund fan club.

Uncertainties remain: it is not clear exactly what the stake will cost, nor if another buyer could potentially step in, since VW does not explicitly say it will sell to Suzuki.

Moreover, the ruling also suggests VW could seek damages for breach of contract. Still, this failed 2009 partnership has been a major distraction almost since it was agreed, and the prospect of a resolution is good news for Suzuki investors.

Retiring almost a fifth of Suzuki's shares should boost earnings per shares by nearly 25 per cent, less whatever derisory interest the company currently earns on that cash.

It would also be a neat way to streamline a balance sheet puffed up with roughly 1 trillion yen ($8.3 billion) of cash.

Helped by what remains of that cash, the company could also lift shareholder rewards. Parsimony makes sense when you are trying to turf someone off your shareholder register. But a payout ratio of 15 per cent looks miserly set against, says Honda, which aims to return 30 per cent of earnings to shareholders through dividends and buybacks.

Cynics might say Suzuki will have more incentive to turn in a better financial performance, full stop.

All this will be welcomed by Suzuki's admirers at Balyasny and Third Point. The US hedge funds reckon Suzuki is undervalued, thanks in part to the commanding position which listed unit Maruti Suzuki enjoys in India's booming market.

A decade ago the subsidiary, of which Suzuki owns 56 per cent, was worth barely a third as much as its parent; today both have equal market value.

Well, maybe. Many sell-side analysts think Indian growth is already reflected in Suzuki's share price, and offset by less impressive bits of the empire, like money-losing motorcycles. Besides, if activists are hoping to browbeat Suzuki into changing course, the VW episode shows it is no pushover.

Japan's Suzuki Motor said on August 30, it would buy back the 19.9 per cent stake it sold to Volkswagen after an international arbitration court ordered the German automaker to sell its holding.

The planned partnership soured with Japanese automaker accusing VW of seeking to control it and filing for arbitration in November 2011. VW's stake, acquired in January 2010 for 1.7 billion euros ($1.9 billion), was worth $3.8 billion at Aug. 28's closing price.

Both companies said they welcomed the clarity offered by the ruling from the International Court of Arbitration of the International Chamber of Commerce, which partially upheld the German company's counterclaims of breach of contract.

Suzuki shares reversed initial gains to fall 1.28 per cent by 1300 Tokyo time on August 31, at 4,098.5 yen a share. The Nikkei 225 index was down 1.83 per cent.

US activist fund Third Point disclosed in a recent investor letter that it had taken a stake in Suzuki. The letter, dated July 31, said Suzuki was undervalued and the spat with VW had "apparently paralyzed the company, leaving it unable or unwilling to fix its inefficient balance sheet".

Third Point Chief Executive Dan Loeb, has agitated for change at other Japanese companies including Sony and Fanuc.

Avinash Abraham of Balyasny Asset Management highlighted Suzuki at Sohn Hong Kong, a hedge-fund industry charity event, on June 3. Abraham said the group was undervalued and offered a way to bet on Indian growth, while a resolution of the VW dispute appeared imminent.