Disclosures today by Toyo Construction’s current board reemphasize Toyo’s governance problems and further evidence the need to Rebuild Toyo’s Board and Auditors

Yesterday, Toyo Construction Co., Ltd. (“Toyo”, Securities Code: 1890) announced that its current board has opposed our acquisition proposal and our shareholder proposals that Toyo’s board of directors should be rebuilt to fix Toyo’s severely broken governance.  On review, we can only interpret these announcements as another part of CEO Takezawa’s efforts to maintain his current entrenched governance structure, further showing the need to appoint the board and auditor candidates that we have proposed as a shareholder proposal, who are truly independent, both from Toyo and from Yamauchi-No.10 Family Office LLC (together with KITE K.K., “YFO,” “we” or “us”). 

Toyo’s current board approved and recommended that shareholders tender into a 770 JPY per share tender offer from Infroneer HD (the “Infroneer TOB”) following an extremely short review period, only eight business days.  They went on next to ignore our 1,000 JPY per share counterbid for more than a year.  Today, this board is opposing our 1,000 JPY per share offer on the grounds that “it does not reflect the inherent value of Toyo,” despite having consented to and recommended that shareholders tender into Infroneer’s 770 JPY per share tender offer.  Anyone can clearly see this is self-contradictory logic, and we can only describe it as mixed up. This shows the governance failures of Toyo’s present board of directors in sharp relief.  Also, it is clear that the current share price of 974 JPY (closing price as of May 25, 2023) reflects the expectations of Toyo shareholders that our shareholder proposals will bring fundamental change by rebuilding Toyo’s board and auditors, as well as the discounted present value of our proposed tender offer price.

Also, we do consider the two representative directors who Toyo announced are stepping down to be among the primary causes of Toyo’s governance failures, but Toyo also announced that these same two individuals will continue to serve as sodanyaku and komon of Toyo after the shareholders meeting.  [Note: sodanyaku positions are frequently used by former CEOs of Japanese companies to retain control after ‘retirement’, and abolishment of sodanyaku and komon positions is frequently the subject of pro-governance shareholder proposals]  This proposed ‘leadership change’ is nothing more than a further attempt by entrenched management to maintain their existing broken governance system while concealing that fact from shareholders through superficial changes, and further, to place these leaders where they will not be accountable to shareholders.  They clearly made this attempt after determining that they could not otherwise obtain the approval of shareholders.  This insincere, sneaky attempt to protect existing management’s control, and the fact that the other board members went along with it, further show the deep-seated problems with Toyo’s current board.

The fact that Toyo is allowing its current representative directors and outside directors who post-resignation will cease to be accountable to shareholders to lead and make decisions with respect to a decision of utmost importance both to shareholders and to the mid to long-term corporate value of Toyo is itself inappropriate.  Taken at face value, they have irresponsibly declared that the current representative directors who promised to achieve corporate value in excess of YFO’s 1,000 JPY per share proposal and opposed that proposal, will resign soon.  Further, the parties who will have to pay out the dividend payout ratio of 100% that current management publicly and irresponsibly promised to protect their own positions, are not the resigning representative directors but the continuing and future employees of Toyo.

We have pointed out numerous severe governance flaws in Toyo’s current board to date.  Toyo’s current board, however, has repeatedly and continuously asserted even yesterday that “there are no governance problems,” blinding themselves to the grim factual background of the current situation.  However, they have not offered adequate explanation for why they have decided that the two representative directors and two outside directors will resign at this time.  Instead, they have placed these representative directors as soudanyaku and komon so as to avoid the judgment of Toyo shareholders.  The result is that there will be superficial change only, without any substantive change to the present governance structure of the current board, with decisions made by the nominations and compensation committee populated primarily (four out of five) by current board members.  This again shows that we cannot expect any true reform to Toyo’s governance from the current problematic structure.

As above, it’s plain from yesterday’s disclosures from Toyo that Toyo has serious governance issues.  Without comprehensive reforms through rebuilding Toyo’s board and auditors as per our shareholder proposals for truly independent nominees, we cannot expect improvements to Toyo’s broken governance, or to Toyo’s corporate value or shareholder value.

Please note also that our shareholder proposal is for nominees who are truly independent. We seek to achieve a board composition that will upgrade management and fix Toyo’s broken governance, and at the same time, to conduct a fair and appropriate process to realize shareholder value of 1,000 JPY or more for all Toyo Shareholders, considering all strategic alternatives including remaining as a stand-alone listed company and a full market check, not just our acquisition proposal.

For further information, please contact:
Public Relations Department 
PR Agent: Vox Global Japan Co., Ltd. 
Tel: +81-3-6204-4337 Tanabe/Kuhara
Email: yfo.inquiry@voxglobalasia.com 

Shareholder Contact: Innisfree M&A Incorporated 
Tel: +1-412-232-3651 (Shareholder Contact - English)
Tel: +44-7506-004-047, +1-212-750-5833  (Financial Institutions and Institutional Investor Contact - English)