3D Investment Partners Welcomes Sapporo’s Establishment of the Group Strategy Review Committee and the Initiation of Serious Efforts to Improve Corporate Value, Including the Evaluation of the Real Estate Business

TOKYO–(BUSINESS WIRE)–3D Investment Partners Pte. Ltd. (together with the funds it manages, “3D”, “we”, or “us”), today issued a statement welcoming the fact that the Board of Directors of Sapporo Holdings, Limited (“Sapporo” or the “Company”) (2501.T) has established a Group Strategy Review Committee (the “Committee”), whose members include outside experts, and has initiated a comprehensive and objective evaluation of strategic alternatives to improve corporate value, including soliciting proposals from third parties for Sapporo’s real estate business. We hope that the Committee’s recommendations and the Company’s actions will begin an era of stricter capital discipline.

We also ask that shareholders and other stakeholders (including prospective acquirers of real estate businesses) support the Committee’s efforts by actively providing feedback and proposing measures to enhance Sapporo’s corporate value.

—-

Establishment of the Group Strategy Review Committee

In September 2023, Sapporo established a “Group Strategy Review Committee” and began to evaluate strategic alternatives to enhance Sapporo’s medium- to long-term corporate value. 3D has been informed by Sapporo that the Committee was established in response to feedback from its shareholders, including 3D. We welcome such efforts as proof that Sapporo has begun to make sincere efforts to maximize its corporate value.

The Committee consists of five internal Sapporo directors and two external experts, Takehiko Ogi and Ryotaro Fujii, with experience in business restructuring and capital markets. We understand that the mandate of the Committee is to comprehensively and objectively examine all options that could enhance corporate value, including a sale or spin-off of the real estate business, while engaging in dialogue with shareholders and other stakeholders, in order to maximize corporate value. Furthermore, we understand that the Board of Directors, including Sapporo’s outside directors, will receive reports on the Committee’s efforts, hold appropriate discussions of the Committee’s progress at Board meetings, establish policies, and promptly report the results to shareholders.

During our constructive dialogue with the Company, Sapporo has clearly stated that the Committee plans to compare and examine a wide range of reasonable options, including a sale or spin-off of the real estate business. The Company is also aware that an objective viewpoint is essential in this examination if Sapporo is going to achieve stricter capital discipline. 3D believes that these efforts will address the underlying issues at Sapporo, described in further detail below, and lead to a dramatic increase in corporate value.

Sapporo Shareholder Opinion Survey:

In April 2023, 3D engaged an independent outside research firm to conduct a comprehensive opinion survey of shareholders and market participants in Japan and abroad. The results clearly indicated that it is essential for Sapporo to consider drastic measures to enhance its corporate value. All respondents (100%) indicated that Sapporo is not being managed in a way that maximizes corporate value, and the majority (90%) indicated that Sapporo is not properly managing its alcoholic beverage business and not maximizing the value of its brands. The majority of respondents (84%) also questioned Sapporo’s lax capital discipline, stating that there are no synergies between the real estate business and other segments to justify the investments and in real estate and the focus on real estate as a core business. Finally, the majority of respondents (69%) said that Sapporo’s new medium-term management plan is not appropriate and sufficient to maximize the company’s corporate value, strongly suggesting the need to reexamine the plan (see “Results of Shareholders Survey” (https://www.3dipartners.com/engagement/sapporo-survey-en-202310.pdf) for details). We have shared the results of the shareholder opinion survey with Sapporo’s management and outside directors.

Sapporo’s challenge:

We believe that there are two reasons why Sapporo’s corporate value has stagnated: (1) The Company’s focus on the real estate business, which has no quantifiable synergies with the core alcoholic beverage business and generates returns far below the cost of capital, has not been objectively examined; and (2) the Company’s capital allocation has been suboptimal, with the low profitability of the alcoholic beverages business and food and beverage businesses left unchecked due to Sapporo’s focus and reliance on unrealized profits and rental income in the real estate business. In particular, since the real estate business not only reduces asset efficiency, but also distracts management from addressing the important issue of low profitability of the core business, we believe that a fundamental review of the real estate strategy, including the sale or spin-off of the real estate business, is essential in order to maximize Sapporo’s corporate value. (For details, please refer to the letter announced in March 2023: https://www.3dipartners.com/engagement/letter-to-sapporo-shareholders-en.pdf and the April 2023 presentation: https://www.3dipartners.com/engagement/sapporo-presentation-en-202304.pdf ).

Sapporo-Capital Discipline:

We are disappointed in Sapporo’s decision to dissolve Anchor Brewing Company (“Anchor”) in July 2023, recognizing a loss almost equal to Sapporo’s initial investment of JPY11.9 billion. Including the Anchor acquisition, almost all of Sapporo’s investments in the international beer and food and beverage brands have resulted in significant losses and damaged corporate value. We believe that one of the reasons for this has been the existence of the real estate business, which has given the Company the mistaken belief that unrealized profits from the real estate business would make up for Sapporo’s losses on these investments.

Expectations of the Group Strategy Review Committee

We have high expectations for Sapporo’s commitment to address the issues identified above. During our constructive dialogue with Sapporo, the Company has indicated that it is sincerely committed to resolving these issues through the Committee. Specifically, Sapporo has assured us that the Committee’s scope will include consideration of measures to fundamentally improve the profitability of the alcoholic beverages business. In addition, the Company has stated to us that the Committee would also review the business configuration and portfolio. In particular, with regard to the review of the real estate business, we understand that Sapporo believes that it is critical to objectively analyze the best way to create value from these assets and that the Committee would like to receive proposals from potential acquirers.

In particular, we highly appreciate that Sapporo acknowledged that accepting proposals from outside companies is an effective measure, and that the committee’s remit includes a fundamental review of its business portfolio, including the possible sale or spin-off of its real estate business, in conjunction with achieving the objective of improving the Company’s capital discipline, as the path to enhancing corporate value.

A Request to Sapporo’s Stakeholders

We believe that Sapporo’s Committee is truly a historic initiative and provides a unique opportunity to develop rigorous capital discipline and to increase Sapporo’s corporate value. In order for the Committee’s deliberations to be effective, it is essential that its evaluation reflects feedback from shareholders and other stakeholders. We hope that shareholders and other stakeholders, including potential acquirers of real estate assets, will welcome Sapporo’s efforts and support the Committee’s efforts to enhance corporate value by actively providing feedback to the Company and proposing specific options to increase corporate value. We look forward to your support of the Committee’s efforts to enhance the corporate value of Sapporo.

We have high expectations that the Committee will comprehensively and objectively consider options for maximizing corporate value, and will continue to engage in constructive dialogue with the Company to enhance corporate value.

Reference: Results of Shareholder Opinion Survey

In April 2023, we engaged an independent outside research firm to conduct a comprehensive shareholder and market participant opinion survey. We invited 73 institutional investors and 7 sell-side analysts outside of us to participate, and the 15 institutional investors and 4 sell-side analysts who were ultimately able to participate were asked a standardized set of questions about corporate value, liquor brand value, market valuation, new medium-term management plan, synergies with the real estate business, board composition, etc. Questions were asked and responses obtained (https://www.3dipartners.com/engagement/sapporo-survey-en-202310.pdf).

We believe that the results of this survey were a factor in Sapporo’s establishment of the Committee and its efforts to enhance corporate value. We would like to express our sincere gratitude to all market participants who cooperated in the said survey.

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.

3DIP provides no representation or warranty, either expressed or implied, in relation to the accuracy, completeness, or reliability of the information contained herein, nor is it intended to be a complete statement or summary of the securities, markets, or developments referred to herein. 3DIP expressly disclaims any responsibility or liability for any loss howsoever arising from any use of, or reliance on, this press release or its contents as a whole or in part by any person, or otherwise howsoever arising in connection with this press release. 3DIP hereby expressly disclaims any obligation to update or provide additional information regarding the contents of this press release or to correct any inaccuracies in the information contained in this press release.

3DIP disclaims any intention or agreement to be treated as a joint holder (kyodo hoyu sha) under the Financial Instruments and Exchange Act of Japan, a closely related party (missetsu kankei sha) under the Foreign Exchange and Foreign Trade Act with other shareholders, or receiving any power or permission to represent other shareholders in relation to the exercise of their voting rights, and has no intention to solicit, encourage, induce or require any person to cause other shareholders to represent such voting rights.

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.

This press release may include content or quotes from news coverage or other third-party public sources (“Third-Party Materials”). Permission to quote from Third-Party Materials in this press release may neither have been sought nor obtained. The content of the Third-Party Materials has not been independently verified by 3DIP and does not necessarily represent the views of 3DIP. The authors and/or publishers of the Third-Party Materials are independent of, and may have different views to 3DIP. The quoting Third-Party Materials in this press release does not imply that 3DIP endorses or concurs with any part of the content of the Third-Party Materials or that any of the authors or publishers of the Third-Party Materials endorses or concurs with any views which have been expressed by 3DIP on the relevant subject matter. The Third-Party Materials may not be representative of all relevant news coverage or views expressed by other third parties on the stated issues.

In respect of information that has been prepared by 3DIP (and not otherwise attributed to any other party) and which appear in the English language version of this press release, in the event of any inconsistency between the English language version and the Japanese language version of this press release, the meaning of the Japanese language version shall prevail unless otherwise expressly indicated.

Contacts

KRIK (PR Agent)

Koshida: +81-070-8793-3990

Sugiyama: +81-070-8793-3989