The Appointment of Stephen Givens as Corporate Auditor Will Enhance Board Oversight and Accountability and Ensure a Proper Evaluation of Acquisition Proposals
If Fuji Soft Does Not Accept an Acquisition Proposal, the Company Should Implement a Meaningful Share Repurchase
TOKYO–(BUSINESS WIRE)–3D Investment Partners Pte. Ltd., as investment manager of 3D Opportunity Master Fund (together, “3D,” “we” or “us”) today issued an open letter to shareholders of Fuji Soft Incorporated (“Fuji Soft” or “the Company”) (9749.T) encouraging them to support 3D’s proposals to appoint Mr. Stephen Givens as an independent corporate auditor and to encourage the Board to implement a share repurchase program in the event the Company is not sold. The proposals will be voted on by shareholders at the Company’s 54th Annual General Meeting of Shareholders to be held on March 15, 2024.
More information about 3D’s proposals, including a complete investor presentation, can be found at:
Full text of the open letter:
February 28, 2024
Dear Fellow Fuji Soft Shareholders:
3D Investment Partners Pte. Ltd. as investment manager of 3D Opportunity Master Fund (together “3D,” “we” or “us”) began investing in Fuji Soft Incorporated (“Fuji Soft” or “the Company”) (9749.T) in 2019 and currently owns more than 20% of the outstanding shares of Fuji Soft. We are the Company’s largest shareholder.
In September 2023, we delivered to Fuji Soft non-binding proposals from several well-respected private equity firms (the “Proposers”) to acquire the Company at a substantial premium. Since the proposals were “bona fide offers”, as Fuji Soft admitted1, we had hoped that the Fuji Soft directors would discharge their fiduciary duties faithfully and give “sincere consideration” to these proposals, as they are required to do under METI Guidelines. More specifically, Fuji Soft was required to submit the proposals to the Board, receive additional information from the Proposers, and review the proposals from the perspective of whether such proposals will contribute to improving its corporate value2.
Unfortunately, Fuji Soft’s Board appears to have failed at this task.
Rather than conducting a thorough and comprehensive strategic review process in an effort to maximize corporate value and shareholder returns, the Board is seemingly content to have conducted only the minimally required review process to comply with the METI Guidelines and avoid director liability. The Board formed a Special Committee to evaluate the take-private proposals delivered by 3D, but in our view, the Committee’s process has been flawed and inadequate from the start.
To our knowledge, the Committee only considered the proposals 3D delivered, and did not itself solicit take-private proposals. The Committee has not engaged constructively with the interested parties by providing them access to customary and critical due diligence materials and the Committee has not sought updated proposals from Proposers despite the significant changes to Fuji Soft’s strategy and valuation, including an issuance of a quite ambitious medium-term management plan3, since the proposals were first submitted.
Compounding the Committee’s ineffective process is its flawed approach to assessing the value offered to shareholders in the proposals. We understand that the Committee is comparing the proposals against Fuji Soft’s “intrinsic value” as determined by the Special Committee based on the new medium-term management plan (the “New MTP”), and not the market value. However, the New MTP, submitted in February 2024, was developed with an awareness of the Proposers’ proposed price for taking the company private. In addition, the New MTP is excessively ambitious compared to the past, with an operating income growth target of 16.8% per year, compared to 6.0% per year in the previous medium-term management plan4. We are concerned that this “intrinsic value” calculation likely overstates Fuji Soft’s actual value for two reasons. First, it likely overstates the probability that the Company will achieve the targets set forth in its highly ambitious New MTP, as the Company has a history of failing to reach such targets. Second, it is likely to underestimate the Company’s cost of capital.
In our view, the Company’s share price after the release of the New MTP—although the Company’s current share price already reflects to some degree an expectation that the Company will be purchased5—is close to its “intrinsic value” at this time, which is a superior benchmark for evaluating current and possible future proposals.
Therefore, we believe that the Special Committee, in considering the adequacy of the value offered by the Proposers (or others) in taking Fuji Soft private, should evaluate the take-private proposals from the perspective of whether the proposals offer an appropriate control premium to the current market price.
We believe the Board continues to mishandle this process. We think additional oversight and accountability are needed to ensure that shareholder interests are protected and that the Company maximizes its value. To that end, we are proposing to appoint Stephen Givens as an outside corporate auditor.
As Japanese corporate auditors have the authority to request investigations and reports, the appropriate exercise of this authority enables them to conduct detailed and informed checks to ensure that the review process is designed to maximize corporate value. Corporate auditors do not have voting rights and therefore do not directly influence the Board’s ultimate decision. Through the appointment of Mr. Givens as an outside corporate auditor, shareholders can ensure that an appropriate review process of the proposals is conducted without impacting the authority of the Board to make the substantive decision on the take-private proposals.
Mr. Givens is a recognized expert in corporate law and M&A. As a practicing attorney for over 30 years, he has advised dozens of companies on corporate governance and transactions, has written books and taught classes on these topics, and has a wealth of expertise that is essential to confirming the adequacy of the review process. In addition, he is completely independent of both 3D and Fuji Soft, and thus would be able to fulfill his responsibilities as a corporate auditor from an impartial position and provide independent oversight for the benefit of all shareholders.
In our view, Fuji Soft’s incumbent corporate auditors are not well positioned to perform this role. One is an accountant, another is a real estate securitization attorney, and the third is a former employee of Fuji Soft. We believe these individuals lack the M&A and corporate governance experience and independence necessary to determine the appropriateness of the process for considering a proposal to take Fuji Soft private.
We believe that the appointment of Stephen Givens as corporate auditor will help ensure that the Board conducts a fair process to evaluate proposals for maximizing corporate value.
Also, if after a thorough process, the Board determines not to accept a take-private proposal, we believe the Board should implement a meaningful share repurchase program.
If the board of directors decides not to accept the take-private proposal, the Board is essentially saying that the company’s “intrinsic value” is higher than the price in the take-private proposals and the market price. In such a circumstance, a share buyback would increase the “intrinsic value” per share, as well as accelerate the growth of corporate value over the medium to long term. Moreover, Fuji Soft has committed to selling all of its real estate assets within the next two years, and Fuji Soft’s excess capital problem is therefore expected to further worsen in the short-term. We believe that a share buyback within one year would prevent additional excess capital from building on the company’s balance sheet while also closing the valuation gap between the market price and intrinsic value.
Finally, to be clear, our campaign is not about engineering a particular outcome; it is about improving oversight and accountability and ensuring that the Board follows a sound process on the take-private proposals. In our view, the appointment of Mr. Givens can only help and certainly cannot hurt since he ensures a fair process without impacting the substantive decision-making of the Board.
We encourage our fellow shareholders to review Mr. Givens’ background and the rationale for our proposals as described in our presentation, and to support enhanced Board oversight and accountability at Fuji Soft’s 54th Annual General Meeting.
Sincerely,
3D Investment Partners Pte. Ltd.
About 3D Investment Partners Pte.
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 management 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 Fuji Soft does not reflect its intrinsic value. 3DIP acquired beneficial and/or economic interest based on its own idea that Fuji Soft securities have been undervalued, provides attractive investment opportunities, and may in the future beneficially own and/or have an economic interest in Fuji Soft securities. 3DIP intends to review its investments in Fuji Soft on a continuing basis and, depending upon various factors including, without limitation, Fuji Soft’s financial position, and strategic direction, the outcome of any discussions with Fuji Soft, overall market conditions, other investment opportunities available to 3DIP, and the availability of Fuji Soft securities at prices that would make the purchase or sale of Fuji Soft 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 Fuji Soft securities) to any degree, in any manner permitted by any applicable law, and expressly disclaims any obligation to notify others of any such changes.
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 whatsoever 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 arising in connection with the 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 has no intention of making a proposal, directly or through other shareholders of Fuji Soft, to transfer or abolish the business or asset of Fuji Soft and/or Fuji Soft group companies at the general shareholders meeting of Fuji Soft. 3DIP does not have the intention and purpose to engage in any conduct which constricts the continuing and stable implementation of business of Fuji Soft and/or Fuji Soft 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 not 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 Third-Party Materials are independent of, and may have different views than, 3DIP. The quoted Third-Party Materials on this press release do 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 in 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 to information that has been prepared by 3DIP (and not otherwise attributed to any other party) and which appear in the English language version, the meaning of the Japanese language version shall prevail unless otherwise expressly indicated in case of any contradictions between the Japanese version and the English version.
1 “Notice of Progress of Corporate Value Enhancement Measures” Fuji Soft, January 12, 2024
2 “3.1.2 Guidelines for Corporate Takeovers” METI, August 31, 2023
3 “Medium-Term Management Plan 2028” Fuji Soft, February 14, 2024
4 “Medium-Term Management Plan” Fuji Soft, February 10, 2022
5 The share price increased by about +3.7% (closing price on Nov. 17 – Nov. 20) and +10.3% (closing price on January 11 – January 15; the closing price on January 11 was used as a comparison given that the prior report was released during the course of the day on January 12.) following the November 2023 press release in a professional journal regarding the company’s take-private and the January 2024 company disclosure, respectively, the current share price is estimated to include a certain degree of takeover premium.
Contacts
KRIK (PR Agent)
Koshida: +81-70-8793-3990
Sugiyama: +81-70-8793-3989
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