April 3, 2023

RMB Capital Issues Statement on Tokyo District Court's Decision to Raise Share Price of Itochu-FamilyMart Tender Offer

CHICAGO - RMB Capital (“RMB”), a Chicago-based independent investment advisory firm, has been disputing the case of the tender offer of FamilyMart Co., Ltd. (8028 JP, “FamilyMart”) by Itochu Corporation (8001 JP, “Itochu”), announced in July 2020 at Tokyo District Court (the Court). RMB believed the tender offer price of 2,300 yen per share was unfairly low and requested the Court to revise the price. As a result, the Court recently accepted RMB’s claim and decided to raise the share price to 2,600 yen per share as a fair price.

The Court recognized the independent committee, which was established in the tender offer process to protect minority shareholders’ interest, did not function well and the tender offer process was not conducted fairly for the sake of shareholders, thus the original tender offer price (2,300 yen per share) does not represent a fair value of FamilyMart.

Below are the key findings by the Court:

(1) The independent committee at FamilyMart, which was supposed to negotiate tender offer conditions, reduced the transaction conditions several times without rational explanations.

The independent committee discussed its negotiation policy in which it may terminate the negotiation in case Itochu did not raise its tender offer price. However, the committee gave up its initial policy and accepted lower tender offer price without sufficient discussion and rationale and only cared for the interests of the executives at Itochu and FamilyMart.

(2) The independent committee was influenced by executives of Itochu and FamilyMart to give up its initial negotiation policy.

Itochu’s Chairman, both directly and indirectly, influenced the decision making of the related parties, including the independent committee members, with his refusal to raise the tender offer price above 2,300 yen per share. The FamilyMart’s executive team (also ex-employees of Itochu) implied they could force the tender offer transaction without approval of the independent committee and pressured the independent committee members to provide a path to the tender offer.

RMB appreciates the Court’s decision, which recognized the tender offer was not warranted or developed with generally accepted processes of fairness. RMB hopes this Court decision will result in fairer tender offer transactions in Japan going forward, in order to protect minority shareholders’ interests.

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January 20, 2021

RMB Capital Filed a Petition at Tokyo District Court Objecting to the Tender Offer to FamilyMart

CHICAGO - RMB Capital (“RMB”), a Chicago-based independent investment advisory firm, filed a petition at the Tokyo District Court objecting to the tender offer to FamilyMart Co., Ltd. (8028 JP, “FamilyMart”) by Itochu Corporation (8001 JP, “Itochu”).

RMB believes the tender offer, including the offered price, was significantly unfair for the minority shareholders of FamilyMart, for the following reasons:

1. Itochu took advantage of the short-term market volatility under the COVID-19 pandemic and cut down the tender offer price unfairly.

2. The board and the special committee of FamilyMart failed to protect the interest of minority shareholders.

3. More specifically, the special committee wrongly accepted the tender offer price that was well below the lowest range of the valuation prepared by the independent valuation agency.

4. The entire tender offer process was not compliant with the Fair M&A Guidelines formulated by the Ministry of Economy, Trade and Industry of Japan in 2019, was lacking enough disclosure to inform minority shareholders, and failed to clear the majority of minority hurdle.

Further, RMB believes the tender offer is problematic under ESG investing standards, which have been gaining more attention and acceptance globally. While Itochu and FamilyMart are well-established companies representing Japan’s industry and economy, they ignored key principles of the capital market through this tender offer process and also trampled on ESG principles by failing to fulfill their social duty. RMB hopes to establish a best practice case to ensure the fairness of the tender offer processes in Japan.

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August 18, 2020

 

RMB Capital Responds to Itochu’s Rebuttal of its Opposition to Current Tender Offer to FamilyMart

CHICAGO - RMB Capital (“RMB”), a Chicago-based independent investment advisory firm, invests in both Itochu Corporation (8001 JP, “Itochu”), and FamilyMart Co., Ltd. (8028 JP, “FamilyMart”) through multiple strategies it manages. RMB opposes the current tender offer to FamilyMart by Itochu and demands Itochu raise its offer price back to 2,600 yen per share. RMB is responding to the rebuttal of RMB’s proposal that Itochu released on Aug. 13, 2020.

1. “New Normal” is not a consensus

Itochu asserts that “it is quite difficult to anticipate a rapid recovery in FamilyMart’s business performance” under “the new normal” situation. However, RMB believes it is premature to state that the business environment is permanently altered due to the COVID-19 pandemic. Though it is true that we cannot reject the possibility of the second wave or even the third wave of the COVID pandemic and its adverse impacts on economy, we note that even the notorious Spanish Flu pandemic, which spread across the world in early 20th century, ended in two years. Itochu should present a reasonable basis why it believes “the new normal” will remain beyond the foreseeable future.

2. The valuation by the Special Committee is conservative enough

The valuation obtained by the Special Committee at FamilyMart does not anticipate “a rapid recovery” in its business, either. For example, the valuation assumes FamilyMart’s EBITDA will not recover to the pre-COVID level of 260bn yen until the fiscal year ending in Feb. 2025, more than 4 years from now. RMB believes the DCF valuation by the Special Committee (mid-point 2,756 yen per share) is conservative enough accounting for potential adverse events under prolonged COVID spread in a foreseeable future.

3. Itochu’s proposal based on the short-term thus is not credible

Itochu justifies its low valuation by referring to the lagging stock performance of FamilyMart against the Nikkei Index as of July 8, 2020, when it announced the tender offer. RMB believes the fact that Itochu bases its valuation on the stock performance of only a few months reveals it is not valuing FamilyMart from a long-term perspective. In its pre-tender offer negotiation, Itochu had lowed its offer price from original 2,600 yen to 2,000 yen, then raised to 2,200 yen before reaching to the current offer price of 2,300 yen. RMB believes Itochu completely lost its credibility with such an arbitrary negotiation process. Itochu should present more reliable data to justify its offer price, such as its forecast of FamilyMart’s financials, the discount rate, and the terminal value calculation. Itochu has not been transparent to the shareholders of FamilyMart.

4. Itochu should update its offer price

Itochu admits its offer price of 2,300 yen does not include any synergy effects from fully consolidating FamilyMart. It means the value of FamilyMart for Itochu is more than 2,300. If Itochu expects enough synergies, it should be able to raise its tender offer and still remain accountable to its own shareholders. Further, it will be a huge opportunity loss for Itochu’s own shareholders if Itochu sticks to the current offer price, which FamilyMart cannot accept, and fails to fully consolidate the second largest convenience store chain operator in Japan.

RMB hopes Itochu will thoroughly examine the valuation of FamilyMart and the potential synergies between the two companies, and execute a fair tender offer.

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August 10, 2020

RMB Capital Opposes Tender Offer to FamilyMart by Itochu and Demands Higher Offer Price

CHICAGO - RMB Capital (“RMB”), a Chicago-based independent investment advisory firm, invests in Itochu Corporation (8001 JP, “Itochu”), and FamilyMart Co., Ltd. (8028 JP, “FamilyMart”) through multiple strategies it manages. RMB opposes the current tender offer to FamilyMart by Itochu and demands Itochu raise its offer price back to 2600 yen per share.

1. Application of the New M&A Guideline

RMB participated in the Fair M&A Study Group held at Ministry of Economy, Trade and Industry (METI) in Japan from 2018 to 2019 and asserted that the upgraded Fair M&A Guidelines (“the New M&A Guidelines”) should enhance measures to protect minority shareholders’ interests in tender offer practices. RMB recognizes that FamilyMart, following the New M&A Guidelines, formulated a special committee—which hired its own legal and financial advisors—to evaluate the tender offer conditions from the viewpoint of minority shareholders. However, RMB noted that the disclosure of the tender offer process was not thorough enough for minority shareholders to judge the fairness of the tender offer. For example, valuation reports obtained by FamilyMart’s board and special committee were not provided to shareholders.

2. FamilyMart board should have rejected the offer

In general, tender offers by controlling shareholders bear a significant risk of conflict of interest, because the boards of target companies are under strong influence from their parent companies. RMB believes it is crucial for the boards of target companies to follow the New M&A Guidelines, take appropriate measures to avoid such conflict of interests, and clearly state its opinion to shareholders. However, the board of FamilyMart failed to do so while supporting the tender offer but not recommending the tender offer price, resulting in serious confusion among its shareholders. RMB believes the board cannot support the tender offer without supporting the tender offer price, as it is a key element of the tender offer. The board of FamilyMart should have rejected the tender offer.

3. Itochu is responsible for the confusion as well

Itochu, as a controlling shareholder of FamilyMart, should bear responsibility to secure the fairness of the tender offer process, while considering the interest of the minority shareholders of FamilyMart. However, RMB believes the course of action Itochu took during the tender offer process failed to fulfill its duty. Itochu changed its offer prices several times during the negotiation, apparently with the intention to take advantage of the equity market volatility during the COVID-19 pandemic, which RMB believes is temporary. Itochu also did not accept a “majority of minority” threshold and instead set a low hurdle rate of 9.90% tender, while asserting its arbitrary opinion that almost all index ETFs and passive funds would not tender. RMB considers these actions by Itochu to be unfairly threatening to minority shareholders in order to distort their decision-making process.

4. RMB proposes Itochu raise the tender offer price back to 2600 yen per share and pursue “Sampo-yoshi”

Based on Itochu’s corporate mission of “Sampo-yoshi”, or “good for three sides”, RMB proposes Itochu to raise its tender offer price back to the original 2600 yen per share (“the Original Price”).

• This would be good for the seller: Though the Original Price is below the midpoint (2756 yen) of the DCF price range (2472 yen~3040 yen) of the PwC valuation obtained by the special committee, it falls within the lower limit of the range. FamilyMart board can officially support and recommend the Original Price to its shareholders.
• This would be good for the buyer: Though the Original Price is above the midpoint (2225 yen) of the DCF price range (1701 yen ~ 2749 yen) of the Nomura valuation obtained by Itochu, it falls within the upper limit of the range. Itochu can justify the Original Price for its own shareholders.
• This would be good for society: Both Itochu and FamilyMart can demonstrate the best practice of a tender offer under the New M&A Guidelines and fulfill their responsibility as prominent players representing their respective industries in Japan. Furthermore, it would contribute to the sound development of Japan’s capital market where they reside.

RMB believes the current tender offer is good only for the buyer but leaves the seller and society unhappy. If this deal is forced through, it will create problems for all parties in the long term. As shareholders of both Itochu and FamilyMart, RMB hopes this tender offer will be executed under fair conditions to satisfy all parties.

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RMB is an independent advisory firm focused on helping clients achieve long-term goals. RMB brings in-house, institutional-quality investment expertise together with deep, holistic planning teams to deliver and implement customized strategies for each client. RMB serves individuals, family offices, and institutions.

Headquartered in Chicago, RMB also has offices in Denver; Jackson Hole, Wyo.; Lake Forest, Ill.; Milwaukee; Minneapolis; St. Joseph, Mich.; and Washington D.C. To learn more about RMB, visit rmbcapital.com.

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Media Contact:

Masakazu Hosomizu
RMB Capital
japan@rmbcap.com