Oasis Initiates Legal Action Against Kusuri No Aoki Directors and Calls for Dismissal of its President & Vice President (Stock Code: 3549 JT)
11 Julio 2024 - 10:00PM
Business Wire
*Oasis filed a lawsuit against President
Hironori Aoki and Vice President Takanori Aoki of Kusuri No Aoki
seeking compensation for approximately JPY 7.2 Bn in damages to the
Company
* Oasis submitted a shareholder proposal to
dismiss President Aoki, Vice President Aoki, and Mr. Ryoichi
Yahata
*Oasis urges shareholders to vote AGAINST
the re-election and vote FOR the dismissal of the Aoki Brothers and
Mr. Yahata to improve Aoki’s governance
More information available at
www.KusuriNoAokiCorpGov.com
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.
***
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.
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