CHICAGO--(BUSINESS WIRE)--RMB Capital has provided background information regarding its tender offer proposal to Nippon Columbia (ticker code: 6791 JP).
(1) The background of our tender offer proposal
We believe Nippon Columbia is a very attractive entertainment business in Japan, with its 100 years of history as Japan’s oldest record label that owns historic artist assets. We believe the current stock price is significantly undervalued considering the firm’s tangible and intangible assets and profitability, however. The current market capitalization is about 9.5 billion yen, of which net cash represents 4.6 billion yen (48% of market capitalization), resulting in an enterprise value of 4.9 billion yen. The firm generated approximately 2 billion yen of free cash flow during the previous fiscal year, which could pay off the enterprise value within 2.5 years. We believe the stock swap proposal by Faith, Inc. (estimated at 780 yen per share) ignores the intrinsic value of Nippon Columbia and is unfair. It is clear that the board of directors at Nippon Columbia did not consider the interest of minority shareholders at all.
We are concerned that the board of directors did not pursue better buyout conditions through other potential buyers. The stock swap was announced on March 28th, 2017 or the last trading day to be granted with the shareholders’ rights. Any shares acquired by potential buyers through the market or tender offer after the announcement date would not be granted voting rights at the shareholders’ meeting in June this year, and these shares would be subject to the stock swap once the deal is approved. By timing the announcement, we believe the board of directors at Nippon Columbia gave up the chance to pursue better conditions for minority shareholders.
Against the above background, we decided to propose a cash tender offer to the board of Nippon Columbia at 790 yen per share, which is better than the Faith’s offer, and have proposed to cancel the stock swap so that the board may search for potential buyers, including us.
(2) Our response to the board of directors at Nippon Columbia
We supplied the following answers to questions from the board of directors at Nippon Columbia regarding our proposal of a tender offer.
1. The purpose of the tender offer:
We plan to hold the shares as an investment and may make important proposals from time to time.
2. The business plan after the tender offer:
We support the incumbent management of Nippon Columbia and its business plan, as well as “the new 360-degree strategy” at Faith, Inc. We do not expect any significant changes in the management and business plan at Nippon Columbia while planning to express our opinions through discussions with the executive team. We believe we can contribute to growth in its business through synergies with our domestic and overseas network in the entertainment and technology industries.
3. Our tender offer price:
Our proposed tender offer price of 790 yen per share represents an 11.6% premium over the market price of 708 yen per share on the proposal date. It is above 780 yen per share, a price implied by the stock swap proposal by Faith (the average share price of Faith for one month prior to the stock swap announcement on March 28th of 1322 yen per share, times the stock swap ratio of 0.59). It will be paid in cash, not by illiquid common shares of Faith. Our proposed price is within the DCF price range from 770 yen to 1080 yen, which was estimated based on the information disclosed by Nippon Columbia.
Portfolio Manager, Japan investment team