Asset Value Investors Voices Concerns Over Corporate Governance and Directors' Credibility at Digital Garage

LONDON--()--Asset Value Investors ("AVI") raises governance issues at Digital Garage (4819:JP) and announces intention to vote against the re-election of directors at next AGM.

AVI has been a shareholder since 2018 and currently holds 3% of the company's vote. Over this period, AVI engaged with the board privately by sending two presentations and five letters to encourage corporate governance and structural reforms.

The company’s medium-term management plan published in May 2023 failed to announce new measures, continuing the suboptimal status quo and failing to make a convincing case for its growth strategy. Since the announcement, the share price fell by -39%, resulting in a loss of JPY 90 billion in shareholder value.

Key issues being ignored:

1) Measures to overcome poor performance and share price weakness;

2) Reducing the capital invested in (2371:JP), and;

3) Resolving concerns over the poor quality of the Board of Directors.

Over the past five years, the company underperformed vs. its peer GMO Payment Gateway (“GMO”, 3679:JP). The average annual growth rates in transaction volume and profit for GMO are +38% and +27% versus Digital Garage’s +27% and +15% respectively.

In addition, Digital Garage's share price has underperformed with a five-year return of just +1.6% vs GMO +9.2% and the TOPIX +54.7%. AVI believes that Digital Garage's poor performance, unconvincing growth strategy and inefficient holding structure have resulted in the company trading around 40% below its intrinsic value.

Furthermore, three of the six outside directors have been with the company for over 10 years. Two outside directors, Hiromi Ozaki and Makoto Sakai face conflicts of interest and their impartiality over the monitoring and supervision is undermined. Hiromi Ozaki has had a business relationship with Digital Garage co-founder Joichi Ito at MIT Media Labs for over a decade, while Makoto Sakai heads a law firm providing legal services to Digital Garage - fees account for 5% of his law firm’s annual turnover.

The seven in-house directors have been in office for an average of 16 years - only two of them have experience in the payments business.

Joe Bauernfreund, CEO of AVI, commented: “After years of continued underperformance and a persistent valuation discount, we think that the current Board of Directors lack the necessary experience and independence to rectify the situation. Without meaningful strategic action, including the release of a more comprehensive medium-term plan and a review of the 20% stake in, Digital Garage’s performance is unlikely to change. The inaction of the Board to address Digital Garage’s issues flies in the face of the efforts by the TSE, the Government and the FSA to enhance corporate governance and to pave way for an asset management-oriented country as manifested by Prime Minister Kishida.

“With great reluctance, without significant changes, we intend to vote against the board directors at next year’s AGM and encourage other shareholders who share our concerns to do the same.”

Additional details can be found at the following link:


Daniel Lee –
Asset Value Investors Limited

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Daniel Lee –
Asset Value Investors Limited