NEW YORK & TOKYO--(BUSINESS WIRE)--Fir Tree Partners ("Fir Tree"), manager of certain funds that reported collective beneficial ownership of approximately 6.1% of the outstanding shares of Kyushu Railway Company ("JR Kyushu" or the “Company") (TSE ticker 9142), today announced that both leading proxy advisory firms, Institutional Shareholder Services Inc. (“ISS”) and Glass, Lewis & Co. (“Glass Lewis”), have supported Fir Tree’s case for change at JR Kyushu.
ISS and Glass Lewis affirmed Fir Tree’s compelling case for change at the Board level, citing several challenges the Company faces related to capital allocation and the Company’s underperformance, as well as the need for relevant, independent fresh perspectives on the Board.
ISS recommended shareholders vote FOR Fir Tree’s proposals regarding share buybacks, creating a three-committee structure and aggregate director compensation, as well as FOR the election of Fir Tree’s independent nominees – Toshiya Kuroda and Keigo Kuroda – to the JR Kyushu Board of Directors (the “Board”) at the Company’s Annual Meeting of Shareholders (the “Annual Meeting”) to be held on June 21, 2019. Glass Lewis recommended voting FOR the election of all three of Fir Tree’s independent, highly qualified nominees, Toshiya Kuroda, Keigo Kuroda and J. Michael Owen, as well as FOR its aggregate director compensation proposal.
In its report dated June 5, 2019, ISS concluded:1
- “A vote FOR [the share repurchase of up to 16 million shares in the coming year] is warranted because the company’s balance sheet is under leveraged as comparted (sic) to peer companies, and the proposal would increase capital efficiency.”
- “The central issue in this contest is capital allocation. JR Kyushu is a company with heavy exposure to real estate (yet, no net debt) that the market values at low multiples vs. peers with relatively similar business profiles...”
- “A vote FOR [a board structure with three committees] is recommended because…switching to a three-committee system should increase transparency and accountability particularly to non-Japanese shareholders who often have a hard time in understanding Japan-specific board structures and corporate governance practices.”
- “[W]e note that both Toshiya Kuroda and Keigo Kuroda bring real estate and capital allocation experience, while [Toshiya] Kuroda also brings public board experience…Given how critical real estate is for the company, this appears as a reasonable solution to ensure proper evaluation of capital allocation alternatives by independent members of the board.”
In its report dated June 5, 2019, Glass Lewis concluded:
- “… [W]e believe Fir Tree's core case for board-level change at Kyushu is ultimately more persuasive than the Company's public rebuttal, to-date. In particular, we believe Fir Tree's materials fairly establish that Kyushu is clearly undervalued relative to its closest peers and that the Company has routinely generated less value for investors over any meaningful period since listing. Perhaps more importantly, on a forward-looking basis, there is clearly material market apprehension around Kyushu's capital intensive medium-term growth plan, which appears to involve a substantial degree of investment but very little in the way of measurable growth or more granular accountability.”
- “Given the paucity of disclosure around Kyushu's real estate assets, growth strategy and M&A plans, we believe the proposed election of the Fir Tree nominees appears to represent more favorable upside than support for Kyushu's new nominees.”
- “(I)nvestors have been provided the opportunity to elect what we consider to be three new, credible directors…We expect this reconstituted board -- supported by substantially greater real estate expertise -- would be more open to discussing alternative strategies the existing directors have seemed to resist, including by advocating for increased transparency around the Company's real estate portfolio and exercising more circumspect and informed oversight of Kyushu's peer-leading capital expenditure programs.”
Aaron Stern, Managing Director and Partner at Fir Tree, stated: “ISS and Glass Lewis have clearly and rightfully recognized that change is needed at JR Kyushu. Both proxy advisory firms’ reports agree with our argument that the Company’s Board requires independent oversight and relevant real estate, investment and investor communications experience to successfully execute on its strategy and create even greater value for shareholders. With these changes, we believe that JR Kyushu can fully realize its potential. We urge shareholders to vote for our three highly qualified nominees – Toshiya Kuroda, Keigo Kuroda and J. Michael Owen – as well as our share buyback proposal, three-committee structure proposal and director compensation proposals.”
“Notably, ISS’s report underscores the importance of addressing the Company’s capital allocation issues by recommending shareholders support Fir Tree’s share buyback proposal. A 10% share buyback has the potential to correct the material decline in Return on Equity projected in the Company’s Medium-Term Business plan, especially given the Company’s depressed valuation and that the conditions for a share repurchase are very favorable right now with JR Kyushu’s cost of debt close to zero. While ISS did not recommend shareholders vote for our nominee J. Michael Owen, we strongly believe that Mr. Owen brings important communications and investor relations expertise focused squarely on the real estate industry to the Board.”
“We encourage all shareholders to visit our www.ABetterWayforJRK.com for more information on our nominees and proposals.”
The 2019 Annual Meeting is quickly approaching and we encourage fellow JR Kyushu shareholders to vote FOR the following Shareholder Proposals:
# 7 – Approve Purchase of Own Shares (10% share buyback).
# 8 – Amend Articles of Incorporation (Change to a Three Committee Structure).
# 9 – Appoint Directors Toshiya Justin Kuroda, Keigo Kuroda and J. Michael Owen.
# 10 – Appoint Directors Toshiya Justin Kuroda, Keigo Kuroda and J. Michael Owen.
# 11 – Approve Adoption of Restricted-Share Compensation to be received by Directors.
# 12 – Approve Details of the Compensation to be received by Outside Directors (to ensure that compensation doesn’t decline if the number of independent “outside” directors increases).
Since JR Kyushu proposed two additional Board members this year but did not expand the number of Board seats, shareholders that vote in favor of Fir Tree’s nominees need to vote against two Board nominees in Company Proposal #2 to ensure that shareholders only vote in favor of a total of 12 Board members. Glass Lewis has recommended that shareholders cast votes against management nominees Toshihide Ichikawa and Shinji Asatsuma and ISS has recommended that shareholders cast votes against Koji Toshima. Based on ISS and Glass Lewis’s reports, we recommend shareholders vote AGAINST management nominees Toshihide Ichikawa, Shinji Asatsuma and Koji Toshima.
Based on JR Kyushu’s Notice of the 32nd Annual Meeting, votes may be received up to 5:30pm JST on June 20th. However, the deadline for non-Japan holders may be significantly earlier, with some custodians’ voting deadlines falling as soon as June 7th. Fir Tree urges all shareholders to check with their brokers to determine their specific deadline to ensure that their votes will count.
For a detailed presentation outlining Fir Tree’s proposals and rationale for such proposals, in addition to other information, please visit www.ABetterWayforJRK.com.
Shareholders who have questions about Fir Tree’s proposals or how to vote are encouraged to contact the firm’s advisor, Innisfree M&A Incorporated, at +1 (212) 750-5833.
About Fir Tree Partners
Fir Tree Partners, founded in 1994 and located in New York City (HQ) and Miami, is a value-oriented investment manager that invests on behalf of endowments, charitable and philanthropic foundations, pension funds and other institutional and private investors. The firm has successfully applied its opportunistic approach across a wide array of asset classes, industries and geographies, including in Japan where it has been actively investing for nearly a decade. Fir Tree Partners has adopted Japan's Stewardship Code.
This press release should not be construed as asking for an agreement on Fir Tree’s proposals or soliciting any person to authorize Fir Tree or any third party to exercise voting rights on such person’s behalf with respect to the election of directors of JR Kyushu or any other matter to be presented to shareholders at JR Kyushu's upcoming Annual General Meeting (the "AGM"). Fir Tree intends to encourage fellow shareholders to cast their votes against certain proposals by JR Kyushu and in favor of Fir Tree’s proposals by either attending the AGM or using the voting card enclosed with the convocation notice that will be sent by JR Kyushu. This press release is not intended and should not be considered to solicit, encourage, induce or seek for fellow shareholders to authorize Fir Tree or any other third party as their proxy in exercising their voting rights on their behalf.
This press release is based solely on Fir Tree’s own analysis and information made publicly available by JR Kyushu.
1 Permission to quote ISS was neither sought nor obtained.