TOKYO & HONG KONG--(BUSINESS WIRE)--Oasis Management Company Ltd. (“Oasis”) is the manager to private funds that own shares of NIPPO Corporation (“NIPPO” or the “Company”) (1881 JT) and its parent company, ENEOS Holdings Inc. (“ENEOS”) (5020 JT). Oasis has adopted the Japan FSA’s “Principles for Responsible Institutional Investors” (a/k/a Japan Stewardship Code), and in line with those principles, Oasis monitors and engages with its investee companies.
As an actively engaged shareholder of NIPPO since 2016 and a shareholder of ENEOS, Oasis is deeply disappointed by the announcement of the planned tender for NIPPO. The offer of just JPY4,000 per share for NIPPO minority shareholders and the planned buyback price of JPY2,859 per share for ENEOS’s shares significantly undervalues NIPPO and its assets, destroying value for all shareholders.
We believe this unfair price could only have resulted from a significantly flawed transaction process that falls short of the standards set by the Ministry of Economy, Trade and Industry’s “Fair M&A Guidelines”. Oasis believes that a fairer price for NIPPO would be greater than JPY5,600 per share.
This transaction is not a classic case of a parent company privatizing its subsidiary. There is no claim here of creating synergies between the two companies to generate long-term growth in corporate value for all stakeholders. This is, in effect, a change-of-control transaction, with the majority of the economic rights being transferred to Goldman Sachs (the “Purchaser”). Although ENEOS retains 50.1% of the voting rights, this convoluted structure will result in ENEOS reducing its ownership of NIPPO to just 35% (or 25.05% if call options are exercised on a relisting of NIPPO). The Purchaser will own at least 65% of the economic rights (and up to 74.95% if it exercises its call options before a relisting).
The announced transaction is simply financial arbitrage in favor of the Purchaser, taking advantage of the ease by which a majority shareholder can force out minority shareholders at a cheap price to relist later, capturing the disparity between the price paid and the real price of the business and assets. As a result, both NIPPO’s minority shareholders and ENEOS shareholders are losing out through this transaction.
The tender document clearly states that the goal of this privatization is a future relisting:
“The basic policy of GSSPC and ENEOS is to relist the Target Company’s shares after enhancing the Target Company’s corporate value through the Transaction…”
However, the details of any plans for achieving these so-called enhancements of corporate value through the transaction are vague at best, and fail to address the domestic challenges and opportunities that NIPPO’s core business faces in the future. The enhancements noted in the tender document include identifying overseas partners to increase sales and receiving information regarding real estate development – neither of which are particularly complex, and both of which can be performed just as well, if not better, by alternative partners and/or consultants. The vague plans to enhance corporate value demonstrate that the main value driver is the cheap price paid to minority shareholders.
Oasis has sent detailed letters to NIPPO and ENEOS outlining our governance concerns, our views of the deep undervaluation of NIPPO, and the flaws in the process, including but not limited to:
- No active market check conducted.
- No majority of minorities clause.
- Concerns over the independence of the independent directors tasked with protecting minority shareholders.
- Flawed valuation from Yamada Consulting Group, which fails to include the value of NIPPO’s real estate, cross-shareholdings, and additional assets.
The Company’s Special Committee should ensure that minority shareholders receive the full value of the business and assets, rather than a premium to the stock price that remains well below the fair value of the Company.
Oasis calls on NIPPO and the Special Committee to:
- Conduct an active market check to solicit a higher price and more meaningful synergies and benefits to NIPPO.
- Renegotiate for a higher price for minorities.
- Demand a special dividend to make up for the shortfall in fair value for minority shareholders.
Minority shareholders deserve a fair price and a fair process. Oasis will do everything in its power to protect minority shareholders of NIPPO and ensure a fair price and a fair process.
Oasis Management Company Ltd. manages private investment funds focused on opportunities in a wide array of asset classes across countries and sectors. Oasis was founded in 2002 by Seth H. Fischer, who leads the firm as its Chief Investment Officer. More information about Oasis is available at https://oasiscm.com. Oasis has adopted the Japan FSA’s “Principles for Responsible Institutional Investors” (a/k/a Japan Stewardship Code) and in line with those principles, Oasis monitors and engages with our investee companies.
The information contained in this press release (referred to as the "Document") is an information resource for shareholders in NIPPO and ENEOS offered by Oasis, the investment manager to funds that are shareholders of NIPPO and ENEOS (the "Oasis Funds").
The Document is not intended to solicit or seek shareholders' agreements to jointly exercise voting rights with Oasis. Shareholders that have an agreement to jointly exercise their voting rights are regarded as Joint Holders under the Japanese large shareholding disclosure rules and they must file notification of their aggregate share ownership with the relevant Japanese authority for public disclosure under the Financial Instruments and Exchange Act. Oasis does not intend to be subjected to such notification requirement. The Document exclusively represents the opinions, interpretations, and estimates of Oasis.