General Shareholders Strongly Support Asset Value Investors’ (AVI) Proposals to Companies Controlled by Dominant Shareholders
Q1 2021 hedge fund letters, conferences and more
London 02 July 2021 - Controlling shareholders defiantly voted to preserve their own interests to the detriment of general shareholders.
A majority of general shareholders supported AVI proposals at SK Kaken.
Strong Support For Proposals Submitted By AVI
Voting results from June-end AGMs show strong support by general shareholders for proposals submitted by Asset Value Investors (“AVI”).
AVI submitted shareholder proposals to three companies -- Tokyo Radiator (TYO 7235), NS Solutions (TYO 2327) and SK Kaken (TYO 4628). All three companies are controlled by a dominant shareholder -- KKR-owned Marelli Corporation owns 40% of Tokyo Radiator, Nippon Steel owns 63% of NS Solutions, and founding Fujii family owns 40% of SK Kaken.
AVI submitted a combination of shareholder proposals to address poor capital allocation and governance typically associated with companies controlled by a dominant shareholder.
Leading proxy advisor Institutional Shareholder Services (“ISS”) broadly recommended votes FOR AVI’s proposals.
The dominant shareholder in each case voted AGAINST AVI’s proposals. AVI’s proposals sought to impose objective checks on the conflicts of interest created by “controlled company” structures and reform value destructive capital policies that favor dominant shareholders at the expense of general shareholders.
General shareholders were strongly supportive of AVI’s proposals.
At SK Kaken, a majority of general shareholders (i.e. shareholders other than inside and strategic shareholders (including the founding Fujii family)) voted FOR AVI’s proposals for a 10-for-1 stock split and cancellation of treasury shares to improve liquidity.
A majority of SK Kaken general shareholders also voted AGAINST re-electing Statutory Auditor Shoji Hamano. ISS recommended AGAINST this candidate because of lack of independence.
At Tokyo Radiator, one in four general shareholders voted FOR AVI’s proposals to return to shareholders ¥5.5 billion in idle cash on deposit with controlling shareholder Marelli.
Proposals to establish a Nomination and Compensation Committee to bring greater independence and an incentive compensation system for senior management to better align management and shareholder interests received the same level of support from general shareholders.
At NS Solutions, AVI’s three proposals for a modest dividend, share buyback, and establishment of a performance-linked executive incentive compensation system were approved by 39%, 33% and 29% of general shareholders.
AVI CEO Joe Bauernfreund commented: “The controlling shareholders voted against AVI’s proposals in defiance of Japanese government guidelines requiring special measures to protect against the abuses inherent in controlled companies.
“Investors will continue to discount controlled company stocks deeply as long as dominant shareholders are permitted to treat them as convenient servant companies.”
Details of voting results for each proposal are shown in the charts below.
Tokyo Radiator: AGM June 25, 2021
|
AVI PROPOSALS |
GENERAL SHAREHOLDERS FOR1 |
| (a) Return of ¥5.5bn cash held on deposit to parent company Marelli, and return it to shareholders as a special dividend | 25 % |
| (b) Transition to a company with an audit and supervisory committee to strengthen the supervisory function of the board of directors | 23 % |
| (c) Establishment of a nomination committee and a compensation committee, the majority of members to be comprised of outside directors | 25 % |
| (d) Introduction of restricted stock-based compensation system for directors (excluding outside directors) | 25 % |
1 AVI estimate. Percentage of votes approved, assuming that all voting rights held by Marelli Corporation were cast against the proposals and excluding those negative votes.
NS Solutions: AGM June 18, 2021
|
AVI PROPOSALS |
GENERAL SHAREHOLDERS FOR2 |
| (a) A final-year dividend of ¥62 per share, for a total dividend of ¥87, in reaction to NSSOL’s proposal to reduce the dividend from ¥65 last year to ¥52.5 this year, the first dividend decline since 2009 | 39 % |
| (b) A share buyback, to be funded by disposition of excessive “strategic shares”, to reduce the share ratio of NSSOL’s controlling 63.4% shareholder Nippon Steel Corporation to 61.1%, a level that will help to meet the Tokyo Stock Exchange’s new 35% free float requirement | 33 % |
| (c) The introduction of stock-based compensation for directors | 29 % |
2 AVI estimate. Percentage of votes approved, assuming that all voting rights held by Nippon Steel were cast against the proposals and excluding those negative votes.
SK Kaken: AGM June 29, 2021
|
AVI PROPOSALS |
GENERAL SHAREHOLDERS FOR3 |
| (a) 10-for-1 stock split | 55 % |
| (b) Treasury share cancellation | 57 % |
1 AVI estimate. Percentage of votes approved, assuming that all voting rights held by inside and strategic shareholders such as Shikoku Kosan, Kansai Mirai Bank, Mr Fujii Minoru, Mr Fujii Kunihiro, Mr Fujii Mitsuhiro, SK Kaken Mutual Prosperity Association and Mr Sakamoto Masahide were cast against the proposals and excluding those negative votes.
