Japan: Kirin rejects proposal to divest non-beer business

Kirin on Monday rejected a proposal of activist investor Independent Franchise Partners (FP), which owns roughly a 2% stake in Kirin, to dispose of all of its assets outside the traditional beer business. Hassan Elmasry, CEO of UK-based FP demanded the company to sell its non-core business in the pharmaceutical and cosmetical industry and to use the proceeds to buy treasury stocks worth JPY 600 billion (USD 5.45 billion).

FP said in a statement on Monday, that its position in Kirin since September 2014 was “based on its view of the fundamentally attractive collection of beer assets in Japan, Australia, Myanmar and the Philippines” but was “obscured by substantial non-core holdings in the pharmaceutical, bio-pharmaceutical, and skincare industries.”

“Over the past 5 years, Franchise Partners has engaged with the company’s management and board to encourage them to take practical steps to close the significant conglomerate and capital allocation discounts that are reflected in Kirin’s valuation,” FP said.

In the view of declining beer, Kirin started in the 1990s to diversify its assets base by moving into the pharmaceutical sector with its affiliate Kyowa Kirin Co and by buying a 30.3% stake in cosmetics company Fancl Corp.

In direct response to FP’s proposal Kirin also issued a statement on Monday saying that “the board strongly disagrees with FP’s recommendation that Kirin divest from all non-beer assets, believing this action would forfeit considerable long-term growth opportunities and ultimately destroy shareholder value. Given the continued slowdown in the global beer market, and in particular our domestic market, compounded by Japan’s ageing and shrinking population, sustainable growth cannot be achieved absent the investments in non-beer markets strategy the company views as critical for Kirin’s success,”

FP also said it welcomes Kirin’s proposal to overhaul its board. However, “while the company’s four candidates appear to meet the technical standard for independence, three of them are financially affiliated with Kirin. Shareholders have reason to question whether these candidates will be allowed to offer genuine oversight of Kirin management or to ask fundamental questions about the current strategy and capital allocation priorities.”

Kirin answered that “with the appointment of Kirin’s nominees and the announced resignation of a departing non-executive director, seven of Kirin’s 12 directors will be independent, two will be non-Japanese, and two will be female. Given the deep expertise and diverse backgrounds of Kirin’s directors and nominees, the board of director believes that it is not necessary to appoint two candidates recommended by FP.

On Tuesday FP said it was willing to withdraw all four of its shareholder proposals but only if the company agreed to accept its two candidates for independent directors and if the group’s business plan for 2027 was submitted to the new board for “a thorough and independent review”.

“We regret that Kirin management have not accepted our compromised offer in the constructive spirit in which it was given. Instead, we aim to convince other shareholders on the merit of the proposal at the annual general meeting (AGM) [which will take place in March],” Elmasry said.

In recent times, activist investors have been gaining momentum in Japan by complaining about the poor performance of larger Japanese firms, which they claim to hoard cash instead of investing it in an intelligent manner or giving it to their shareholders.

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