TOKYO--(BUSINESS WIRE)--3D Investment Partners Pte. Ltd., the asset management company of 3D OPPORTUNITY MASTER FUND (collectively referred to as “3D”), today announced that Institutional Shareholder Services (“ISS”), a leading independent provider of proxy research and voting recommendations for the institutional investor community, has recommended that shareholders of Sapporo Holdings Limited (“Sapporo” or “the Company”) (2501.T) vote “FOR” the appointment of 3D’s director nominee Paul Brough at the Company’s 101st Annual General Meeting of Shareholders (the “AGM”), scheduled to be held on March 28, 2025.
In its report, ISS concluded that “board change is warranted,” given the Company’s “poor track record in capital allocation, the intention to reallocate [a] substantial amount of the proceeds from the sale of real estate to the underperforming alcoholic beverages business, coupled with unproven board oversight.” ISS determined that 3D’s outside director candidate, Mr. Paul Brough, “would bring necessary strategic review, restructuring and public board experience” and is therefore best positioned to effect the necessary change at Sapporo.
ISS recommended that shareholders vote “AGAINST” the appointment of incumbent outside director Makio Tanehashi. ISS acknowledges 3D’s concern that Mr. Tanehashi is not sufficiently independent, noting that “his prior links to the company, coupled with questionable board oversight and the open questions surrounding the status of the pending real estate review, suggest that he has not been an effective voice to date or a representative who shareholders can rely on to push for necessary reform moving forward.”
In making its recommendation, ISS noted the following:
Performance
- “Sapporo has a long history of underperformance, lack of ambitious targets, and weak board oversight.”
- “The company has not questioned the dissident's arguments around long term performance, with the company displaying weak fundamentals for at least two decades.”
- “In terms of fundamental performance, the company underperformed the breweries and median of REITs in terms of ROE every year of the last five except one… Its ROE of mid-single digits has been consistently below its cost of equity. Its operating margins in its main businesses (Real Estate and Alcoholic Beverages) are the lowest among peers.”
- “The company now targets an 8 percent ROE by 2026, a return to the 2007 target that was never achieved. But importantly, execution has historically been poor and managed by insiders with decades serving at the company.”
- “…it is notable that the consensus has had a sell rating on the stock for the last two years. TSR to date seems to reflect, to a large degree, the expectation of change caused by [3D’s] campaign and the company’s reactions to it.”
Board Oversight Failures
- “Management has not been held accountable for persistent failure to meet targets, which did not appear demanding.”
- “Past M&A deals to expand the beverage business have not added much value, as shown by the results.”
- “[T]he company appears to be taking a long time to announce a transaction on its real estate as it expects to reach a conclusion by the end of 2025, i.e. almost two years after concluding real estate was non-core.”
- “The audit [and supervisory] committee appears particularly open to criticism, with an insider as a chair, and a lawyer and a [former] corporate auditor [of another company] as members, when this committee is tasked not only with accounting but also business audits.”
The Case for Change
- “The company is at a critical juncture with management about to make a massive capital reallocation when the partial sale of its real estate business is completed. Given the company's poor track record in capital allocation, the intention to reallocate [a] substantial amount of the proceeds from the sale of real estate to the underperforming alcoholic beverages business, coupled with unproven board oversight, board change is warranted.”
Appointment of Mr. Paul Brough as an Outside Director
- “[Mr. Brough] was the former chairperson of Toshiba’s Strategic Review Committee and a member of its Special Committee. [He] brings substantial strategic review, restructuring, and public board experience.”
- “[T]here is no reason to conclude that [Mr. Bough’s] past advisory role with [3D] would affect his judgement, and he would be only one of 11 or 12 directors (depending on whether Makio Tanehashi is reelected).”
3D agrees with ISS that Sapporo is “at a critical juncture” regarding its pending real estate divestiture. 3D believes that a stronger, more independent Board is necessary to support accountability and ensure that the divestiture process maximizes corporate value and that the proceeds are allocated effectively.
3D encourages Sapporo shareholders to vote FOR its proposal to appoint Mr. Brough as an outside director as a member of the Audit and Supervisory Committee and AGAINST Mr. Tanehashi’s reappointment as an outside director at the Company’s upcoming AGM.
Note: The passages in quotation marks ("") are direct quotes excerpted by 3D from ISS's report. The portions in brackets ([]) have been added by 3D for additional clarity/context. Permission to use these quotes from ISS was neither explicitly sought nor obtained.
About 3D Investment Partners Pte. Ltd.
3D Investment Partners Pte. Ltd. is an independent Singapore-based Japan focused value investing fund manager founded in 2015. 3D Investment Partners Pte. Ltd. focuses on partnering with managements who share its investment philosophy of medium- to long-term value creation through compound capital growth and a common objective of achieving long-term returns.
Disclaimer
This press release is provided for informational purposes only and does not constitute an offer to purchase or sell any security or investment product, nor does it constitute professional or investment advice. This press release should not be relied on by any person for any purpose and is not, and should not be construed as investment, financial, legal, tax or other advice.
3D Investment Partners Pte. Ltd. and its affiliates and their related persons (“3DIP”) believe that the current market price of Sapporo does not reflect its intrinsic value. 3DIP acquired beneficially and/or economic interests based on its own idea that Sapporo securities have been undervalued and provides attractive investment opportunity and may in the future beneficially own and/or have an economic interest in, Sapporo securities. 3DIP intends to review its investments in Sapporo on a continuing basis and, depending upon various factors including, without limitation, Sapporo's financial position and strategic direction, the outcome of any discussions with Sapporo, overall market conditions, other investment opportunities available to 3DIP, and the availability of Sapporo securities at prices that would make the purchase or sale of Sapporo securities desirable, 3DIP may, from time to time (in the open market or in private transactions), buy, sell, cover, hedge, or otherwise change the form or substance of any of its investments (including the investment in Sapporo securities) to any degree in any manner permitted by any applicable law, and expressly disclaims any obligation to notify others of any such changes.
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3DIP does not have the intention to make a proposal, directly or through other shareholders of Sapporo, to transfer or abolish the business or assets of Sapporo and/or Sapporo group companies at the general shareholders meeting of Sapporo. 3DIP does not have the intention and purpose to engage in any conduct which constricts the continuing and stable implementation of business of Sapporo and/or Sapporo Holdings group companies.
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