Konnichiwa from Tokyo: and welcome to our English newsletter. During these uncertain times, we hope you and your loved ones are keeping safe and healthy. Land of the Rising Activists? (This article is published in 2 parts: the first part focuses on the current climate of shareholder activism in Japan prior to the landmark case of Alphaleo Holdings and Inui Global Logistics. The second part focuses on the Alphaleo decision and its implications.) Part 2: Alphaleo Holdings v Inui Global Logistics 1._Background Alphaleo purchased shares in Inui in 2014. It presently holds 30.34% of all shares. All have been acquired on the open market. Soon after Alphaleo became a shareholder, Yasuyuki Inui (Mr. Inui) was appointed as representative director of the board. Under this new leadership, Inui began making significant losses, falling short of the company’s forecasted sales projections. In June 2019, at an ordinary meeting of the shareholders, anti-takeover measures were approved by shareholders. In response to such a resolution, as well as to the company’s ill financial state, Alphaleo submitted a proposal to abolish such measures. It also called for the dismissal of Mr. Inui, a reduction in directors’ compensation, conducting share buybacks, and the paying of dividends of 38.28 yen per share. In October 2019, a notice of a shareholder meeting was sent out. Strikingly, the abolition of the anti-takeover measures was not on the agenda. Controversially, Inui claimed that the legality of calling for a shareholders meeting to vote on anti-takeover measures was questionable, and not in accordance with the company’s articles of incorporation. In response to the company’s failure to include the anti-takeover measures on the agenda, Alphaleo successfully petitioned the Tokyo District Court to call a shareholders meeting to discuss that agenda item and the court ruled in favour of Alphaleo. As discussed in Part 1 of this Article, this deviated from the court’s decision in Reno and Yorozu Corporation, less than a year prior to the decision of Alphaleo. In the case of Reno, the court dismissed a similar petition from Reno, a domestic investment company, to set abolition of anti-takeover measures as an agenda item for a shareholder meeting of Yorozu. The official court decision is unpublished, but it is speculated that the decision likely came down to two things: a) the attitude and the view by the courts of the motives and moral grounds of the parties, and b) the interpretation of the articles of incorporation.
2._Implications for foreign investors Save for exceptions regarding investment in sensitive industries, there is nothing restricting foreign shareholders from investing in Japanese companies. There is currently a high level of foreign shareholding in public companies. Some high-profile activist U.S funds have taken stakes in public Japanese companies; such as in Olympus by ValueAct as mentioned above. The case of Alphaleo showed that, while subject to the Articles of Incorporation, shareholders have the power to call a shareholders meeting to abolish anti-takeover measures. This could allow shareholders who command enough support from other shareholders to dismantle power held by entrenched management, and demand higher share value creation through better governance. It shows the changing attitudes of Japanese courts towards so-called activist shareholders. Especially if the shareholder proposals have genuine grounds for call for better management and governance, and management members could be seen as trying to solidify their power at the expense of other stakeholders, courts will be more sympathetic. One could take from the few examples discussed in this article that shareholder intention, and whether its proposals or takeover bids benefit other stakeholders, and not just the proposing shareholder itself, is vital to the success of its activist proposals or takeover measures, especially if the case comes before the courts. With changing attitudes of the courts, an increase in shareholder proposals, activists successfully appointing or dismissing directors, and companies getting rid of their poison pills, could foreign companies now to look to Japan as a fertile ground for activism? Alternatively, is it still too early to say that this is a new age of shareholder activism in Japan? Or as critics of such a movement fear, is this the beginning of Japanese corporations focusing on short-term profits and gains to give maximum shareholder value, at the expense of long-term gains for all stakeholders? (Written by: Dai Iwasaki, Tomo Greer) For more information and questions regarding this newsletter, reach out to us at newsletter@tkilaw.com. |
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