Kaname Capital files shareholder derivative action against Fukuda Denshi directors
2024年8月1日 - 4:39PM
ビジネスワイヤ(英語)
(BUSINESS WIRE)--Kaname Capital LP ("We") announces that it
filed a shareholder derivative action today in the Tokyo District
Court against the directors of Fukuda Denshi Co., Ltd. (6960.T)
("Fukuda Denshi"), one of our portfolio companies.
Kotaro Fukuda, the second generation of Fukuda Denshi's founding
family and chairman ("Chairman Fukuda"), has held the position of
representative director for nearly 40 years and has privatized the
company to secure his own interests. At the same time, he has
neglected the interests of other stakeholders, including Fukuda
Denshi's employees and minority shareholders.
To date, we have communicated our concerns as shareholders to
Fukuda Denshi's representatives and have repeatedly requested
meetings with Chairman Fukuda himself and the outside directors who
are in a position to provide oversight. However, Fukuda Denshi has
not effectively addressed our concerns, nor did they agree to any
of the meetings we requested with these individuals. As a result,
we have decided to file a shareholder lawsuit against Chairman
Fukuda and others, demanding compensation for damages of
approximately 54 billion yen inflicted on Fukuda Denshi.
The illegal acts of Chairman Fukuda and others that we allege in
this lawsuit are the following three points.
1. Arbitrary payment of high compensation
- Chairman Fukuda continues to hold the authority to determine
the amount of remuneration for directors, and he alone determines
the amount of individual remuneration for each director, including
himself.
- Chairman Fukuda's total compensation increased from 136 million
yen in the fiscal year ended March 31, 2015 to 434 million yen in
the fiscal year ending March 31, 2023, a threefold increase.
- The increase in Chairman Fukuda's remuneration began to
coincide with the period when profit transfers through the
companies owned by the founding family, discussed below, ceased,
and it is suspected that Chairman Fukuda was attempting to
supplement his own take-home pay by increasing his executive
remuneration.
- Chairman Fukuda's current remuneration is remarkably high
compared to other companies in the same industry, and it is not a
level that can be justified by improved business performance during
this period.
- On the other hand, employee salaries have remained virtually
flat until the COVID pandemic, despite improvement in
business performance. Only recently, in response to rising prices,
have wage increases of about only 4% to 5% per year finally been
implemented.
- Fukuda Denshi has also not established any objective standards
for the amount of remuneration for directors, and we believe that
the arbitrary determination of remuneration by Chairman Fukuda is
an illegal violation of the Companies Act.
2. Improper profit transfer through a company owned by the
founding family
- Since around 1964, Fukuda Denshi has continued transactions
with Atomic Sangyo, Inc. ("Atomic Sangyo"), a company owned by the
founding family, to receive supplies of recording paper and other
materials used in electrocardiographs and other devices.
- Despite the fact that this transaction constituted a conflict
of interest, Fukuda Denshi did not obtain any approval from the
Board of Directors, which is required under Japan's Companies
Act.
- Atomic Sangyo, despite being lightly equipped and operated with
a small number of employees, generated operating income of around
500 million yen each year (operating income margin of around
30%).
- Fukuda Denshi was effectively transferring profits to the
founding family by purchasing recording paper and other products
from Atomic Sangyo at high margins.
- In May 2015, Fukuda Denshi's board of directors decided to make
Atomic Sangyo a wholly owned subsidiary of Fukuda Denshi and, in
consideration, to deliver to the founding family shares of Fukuda
Denshi equivalent to a total of approximately 26.5 billion yen at
the then current market value.
- We believe that these transactions are an illegal transfer of
Fukuda Denshi's assets to the founding family.
3. Allotment of shares to the founding family foundation
under the pretext of social contribution activities
- In May 2016, Fukuda Denshi allocated Fukuda Denshi shares with
a market value of approximately 900 million yen at that time to the
Fukuda Denshi Foundation through a trust bank, effectively free of
charge, in order to support the social contribution activities of
the Fukuda Foundation for Medical Technology ("the
Foundation").
- At that time, Fukuda Denshi explained that the trust bank would
not exercise voting rights with respect to the allocated
shares.
- However, around 2020, the trust agreement was terminated and
the Foundation began to own the shares in its own name. After that,
the Foundation has exercised its voting rights every year in full
support of the company's proposal and in full opposition to the
shareholder's proposal.
- We believe that this allotment of shares was actually made for
the purpose of increasing Fukuda Denshi's stable shareholder base,
and falls under the category of profit sharing prohibited by the
Companies Act.
If our company prevails in this lawsuit, the damages allowed by
the court will be paid to Fukuda Denshi. We hope that the unjustly
diverted profits will be returned to Fukuda Denshi so that Fukuda
Denshi can use the funds to improve the treatment of its employees
and to implement other measures to enhance the value of the
company. We believe that it is our responsibility as investors to
correct the misconduct of Chairman Fukuda and others through this
lawsuit and to protect its employees, minority shareholders, and
other stakeholders.
Toby Rodes, our Chief Investment Officer, commented as
follows.
"Fukuda Denshi is a very important company which supports the
medical field in Japan. In recent years, after the COVID disaster,
the company's performance has improved thanks to the efforts of its
employees. Unfortunately, the personalization of the company by
Chairman Fukuda is undermining its value. We sincerely hope that
Fukuda Denshi will adopt the kind of governance that will turn the
efforts of its employees into market confidence."
We hope that relevant stakeholders will work together to raise
their voices to improve the governance of Fukuda Denshi. We welcome
any comments or suggestions you may have and welcome you to contact
us at contact@kanamecapital.com.
About Kaname Capital
Kaname Capital is a Boston-based investment management firm
specializing in long-term investments in Japan-listed equities.
Kaname Capital's slogan is "actions speak louder than words," and
we expect companies to steadily implement measures to enhance their
value, rather than just offer explanations. Kaname Capital aims to
encourage the realization of potential corporate value through
dialogue with investees, and does not wish to be confrontational
with them. Kaname Capital has also stated its acceptance of the
"Principles for Responsible Institutional Investors" (Japanese
version of the Stewardship Code) established by the Financial
Services Agency, and conducts its investment activities in
accordance with these principles.
https://www.kanamecapital.com/
Disclaimer
This press release is for informational purposes only regarding
the legal proceedings brought by Kaname Capital. Kaname Capital is
not soliciting the purchase or sale of any securities or investment
products, nor is it providing investment advice. Kaname Capital
makes no representation or warranty as to the accuracy,
completeness or reliability of the information contained in this
press release. The information contained in this press release is
solely the opinion and assessment of Kaname Capital.
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accommodation only, and should be cross-referenced with the
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Contact: Kaname Capital LP contact@kanamecapital.com