HONG KONG--(BUSINESS WIRE)--Oasis Management Company Ltd. (“Oasis”) is the manager to funds that beneficially own 9.7% of drugstore operator KUSURI NO AOKI HOLDINGS CO., LTD. (3549 JT) (“Kusuri No Aoki” or “Aoki” or the “Company”). Oasis has adopted the Japan FSA’s “Principles of Responsible Institutional Investors” (a/k/a the Japan Stewardship Code) and, in line with those principles, Oasis monitors and engages with its investee companies.
Oasis, a long-term shareholder of Aoki, urges its fellow shareholders to hold the members of the Aoki family leading Aoki accountable at the upcoming Annual General Meeting of Shareholders to be held in August 2024 (“2024 AGM”) for their history of neglecting minority shareholder interests.
At Aoki’s 2023 AGM, more than half of the Company’s shareholders without a business or other relationship with Aoki voiced their dissatisfaction with Aoki’s governance structure, led by President Hironori Aoki and Vice President Takanori Aoki (“Aoki Brothers”), by supporting Oasis’s shareholder proposals. This followed Oasis’s public campaign highlighting serious governance failures at Aoki, including:
- Suspicious stock options (“Stock Options”), which would cause an 11.1% dilution if exercised, were issued to the Aoki Brothers for only approximately JPY 52.5 Mn, representing a discount of more than 99% from the “Fair Unit Price” disclosed by the Company itself.
- The Stock Options were issued shortly after the Company made unusual downward revisions to forecasts which subsequently depressed the stock price significantly.
- The Aoki Brothers will gain rights to exercise the Stock Options soon after the upcoming 2024 AGM, effectively acquiring 11% of the Company at the expense of minority shareholders.
Since Aoki’s 2023 AGM, Oasis has repeatedly sought to engage with Aoki in constructive dialogue. However, Oasis’s good faith efforts have been rejected by the Company’s unwillingness to cooperate. Aoki also made what appear to be intentional efforts to block Oasis’s exercise of its shareholder rights guaranteed by the Japanese Companies Act.
Aoki has:
- Engaged in malicious actions to delay legal procedures, such as submitting last-minute written answers and asking for additional hearings despite having no additional points to argue.
- Failed to comply with the settlement agreement, which Aoki itself requested during the court procedures, which stipulated that Aoki would disclose all the information requested by Oasis on the condition that Oasis would only use the disclosed information for its “legitimate exercise of shareholder’s rights”. Instead, after executing the settlement agreement, Aoki suddenly declared they would only disclose the Plutus valuation report, which was the key document for Oasis to verify the legitimacy of the significant discount of the issuance price of the Stock Options, only if Oasis agreed to onerous and inappropriate non-disclosure terms dramatically restricting Oasis’s shareholder rights.
- In addition to the above, although ultimately unsuccessful, Aoki requested that the court limit the use of materials Oasis obtained. Aoki intended to restrict Oasis from disclosing the Plutus valuation report to any third party even though the report is the basis for the significant discount.
The materials Oasis has obtained through inspecting the Company’s board meeting minutes and books and records have only deepened our concerns about the Company’s corporate governance failings:
- Aoki’s board of directors approved the resolution to issue the Stock Options to the Aoki Brothers at a more than 99% discount, resulting in an 11.1% dilution for minority shareholders if exercised, in a meeting that lasted only one hour and apparently without any of the external directors receiving prior explanation about the Stock Options.
- The Company’s directors received inaccurate and misleading explanations about the valuation of the Stock Options from the Company’s executive department.
- None of the directors were able to identify the obviously false explanations made by the Company’s executive department about the valuation of the Stock Options, revealing the fact that none of the directors had any detailed understanding of stock option valuation.
- The Company likely began preparing to issue the Stock Options in July or August of 2019, long before the downward revision in December 2019, suggesting that the transactions were part of the founding Aoki family’s estate planning. The explanation provided to Aoki’s board as the background for the issuance of the Stock Options was that, “as the Company’s revenue has been declining and the Company’s growth strategy may turn to a downward trend”, the Stock Options could be one option to declare the Company’s growth path. However, given the fact that the issuance of the Stock Options had been considered over a long period of time, this explanation amounts to mere ex-post facto justification based on exploitation of the downward revision disclosed immediately before the issuance of the Stock Options. Furthermore, if the Stock Options had been introduced for the purpose of declaration of the Company’s growth path, the Stock Options would have been issued to other members of management as well. However, the Stock Options were sold exclusively to the Aoki Brothers.
As a significant shareholder of Aoki, Oasis has continually raised its concerns to the Company and sought to further engage. However, all of the Company’s outside directors and outside corporate auditors have refused to meet with us.
Further, Oasis’s request for a lawsuit, asking Aoki’s corporate auditors to sue President Aoki to recover the damages caused to the Company by the issuance of the Stock Options, was not handled appropriately. The corporate auditors failed to adequately investigate Oasis’s concerns and failed to obtain an independent opinion on the issues raised by Oasis with respect to the Plutus valuation. Rather, the corporate auditors asked Plutus directly if the concerns raised about their valuation were valid.
In light of these governance issues, Oasis has initiated its own lawsuit against the Aoki Brothers, Mr. Ryoichi Yahata, and other members of the Aoki family to recover damages to the Company of approximately JPY 7.2 Bn. Additionally, Oasis submitted a shareholder proposal calling for the dismissal of the Aoki Brothers and Mr. Ryoichi Yahata at the Company’s upcoming 2024 AGM.
For too long, Aoki has prioritized the interests of the Aoki family over those of the Company and all its shareholders. The time for change at Aoki is now. Oasis strongly urges Aoki shareholders to vote AGAINST the re-election and vote FOR the dismissal of President Hironori Aoki, Vice President Takanori Aoki, and Mr. Ryoichi Yahata. Oasis also demands that the Aoki Brothers not exercise the Stock Options until a judicial decision is rendered by the court.
Seth Fischer, Founder and Chief Investment Officer of Oasis, said:
“The Aoki Brothers and the Company have continued to practice bad governance at the expense of minority shareholders. The Aoki Brothers will be able to exercise their Stock Options shortly after the upcoming AGM. Shareholders must unite for accountability now for the benefit of all the Company’s stakeholders, including its customers, employees, suppliers, and minority shareholders.”
For more information, please visit www.KusuriNoAokiCorpGov.com. We welcome all stakeholders to contact Oasis at info@KusuriNoAokiCorpGov.com to help improve Kusuri No Aoki’s corporate governance.
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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 the Japan Stewardship Code) and, in line with those principles, Oasis monitors and engages with our investee companies.
The information and opinions contained in this press release (referred to as the "Document") are provided by Oasis Management Company (“Oasis”) for informational or reference purposes only. The Document is not intended to solicit or seek shareholders to, jointly with Oasis, acquire or transfer, or exercise any voting rights or other shareholder’s rights with respect to any shares or other securities of a specific company which are subject to the disclosure requirements under the large shareholding disclosure rules under the Financial Instrument and Exchange Act. 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 shareholding with the relevant Japanese authority for public disclosure under the Financial Instruments and Exchange Act. Except in the event that Oasis expressly enters into the agreement as a joint holder requiring such disclosure, Oasis does not intend to take any action triggering reporting obligations as a Joint Holder. The Document exclusively represents the opinions, interpretations, and estimates of Oasis.