Yamauchi-No. 10 Family Office (“YFO”) Comments on Glass Lewis Opinion

Agrees with Glass Lewis’ Views Related to Toyo Construction Co., Ltd.’s (TYO:1890) (“Toyo”) Governance Issues, but Urges Shareholders to Vote “FOR” All of YFO’s Director Nominees at Toyo’s Upcoming June 27, 2023 Annual Meeting

Today, the Yamauchi-No. 10 Family Office (“YFO”) released the following statement in response to the Glass Lewis voting recommendations for Toyo’s annual meeting to be held on June 27, 2023.

Toyo’s Governance Issues Observed by Glass Lewis

We strongly disagree with Glass Lewis’ recommendation that Toyo shareholders vote for Toyo’s entrenched directors and their hand-picked successors who failed to negotiate for the past 13 months and only recently presented an unsubstantiated and unrealistic mid-term “plan” to increase shareholder value. We are pleased that Glass Lewis agrees with us that:

Toyo’s management decision to reject our all-cash offer on the basis of concerns about whether Toyo would be able to maintain its business prospects under YFO’s ownership is “decidedly flawed” and shareholders should be concerned regarding the Board’s stated rationale for initially rejecting YFO’s acquisition offer in 2022.
“Given the Company’s performance at that time, coupled with the fact that the board had supported the INFRONEER TOB when it was initially presented last year, we believe the YFO Proposal could have been reasonably viewed as representing a relatively compelling value and a superior alternative for shareholders last year.”
“[T]he board’s decision last year to seemingly trivialize the implied deal valuation of the YFO Proposal is one that raises major concerns regarding the extent to which the board would earnestly consider a takeover offer at a compelling value. The fact that the board still cites this concern in its public materials as a reason for rejecting the YFO Proposal may raise continued questions regarding whether the board will truly act in the best interests of shareholders and seek to maximize shareholder value going forward.”

Mistakes in Glass Lewis’ Conclusions

Although Glass Lewis’ observations regarding the serious issues with Toyo’s current board of directors are correct, we strongly disagree with their conclusion that was made in spite of their serious concerns about Toyo’s incumbent board, and firmly believe that it reached the wrong conclusion in recommending against YFO’s nominees. We believe that Glass Lewis’ conclusions are mistaken because they fail to include the important factual relationships below.

The apparent sole basis for Glass Lewis’ recommendation was that YFO did not unilaterally raise its acquisition offer price.

However, Toyo’s board of directors is the body entrusted by the shareholders to maximize shareholder value. The board has a duty to negotiate for a higher tender offer price to increase shareholder value.

Toyo should have been negotiating with YFO on price and other matters for the past 13 months, but failed to perform their duty by seriously considering our offer. In fact, Toyo’s board requested that YFO rescind our offer so that they could accept Infroneer HD’s lower offer. Toyo’s board never once attempted to negotiate with YFO to raise our price.

Toyo’s current board admitted that we made a bona fide offer, so it is clear they should have attempted to negotiate with us. Not only did the board fail to negotiate with us, they also displayed the serious governance problems inherent in the board. YFO had no choice but to make a shareholder proposal to rebuild Toyo’s board. For details, please see chapter 4 of Rebuild TOYO: Leadership Requirements for Toyo’s New Board

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Glass Lewis’ voting recommendations mistakenly shifts blame to YFO for the failure of Toyo’s board to act in accordance with its duties to shareholders.

Toyo’s board still mistakenly believes that this is not an “in play” situation due to the failure of Infroneer HD’s tender offer. We believe Toyo will never try to negotiate with us or for other counterproposals, unless truly independent board nominees are elected.

In contrast, YFO’s nominees have announced that they will evaluate all strategic alternatives that would maximize shareholder value should a majority be elected to Toyo’s board. We would expect they will ask YFO to increase its offer price and conduct a market check as part of that process. Of course, YFO would seriously consider any request to negotiate a price increase, based on sufficient disclosure, to increase corporate value.

Points for Consideration by Shareholders

YFO believes that shareholders should seriously consider the following points when voting:

Glass Lewis did not meet with YFO or our nominees. We have arranged meetings between ISS and our nominees, as well as numerous other shareholders, and the feedback has been overwhelmingly positive: ISS and many others who met with our nominees have concluded that YFO’s nominees are truly independent and will seek to maximize shareholder value and are not beholden to YFO. Our recommended nominees have far superior qualifications and experience as compared to the nominees recommended by Toyo’s current management. YFO nominees will make the necessary changes to the board, such as improving the decision making function and growth strategy. They have the experience and achievement needed to improve governance, and are of superior quality generally. Their intention is to do what is best for you, the ordinary shareholders – whether that means to negotiate the highest price possible for a take-private by YFO or any other party, or to maximize shareholder value as a stand-alone public company.
Glass Lewis ignores the fact that Toyo’s Mid-Term Management Plan is highly unrealistic, particularly in light of Toyo’s track record. ISS, in recommending that shareholders support a majority of YFO’s nominees, stated that “Toyo’s fundamentals have deteriorated, which suggest either a challenging operating environment or issues with execution (or both). Either way, this does not lend credibility to the ambitious goals in the mid-term management plan.” ISS further emphasized that the “underlying assumptions of management's new mid-term plan were not disclosed,” that the Mid-Term Management Plan “does not detail how [its ambitious goals] will be reached,” and that the plan is “largely baseless, predicts unrealistic growth compared to management’s previous track record, and does not consider feasibility.”
Glass Lewis is unaware that Toyo’s most recent announcement of a new board structure is only a cosmetic change. Toyo’s board of directors determined that YFO’s purchase price was inadequate despite the fact that the board encouraged shareholders to accept Infroneer’s offer which was priced at 30% less than YFO's offer. Toyo’s board, which is in a position where it should maximize shareholder profits, did not attempt to negotiate a purchase price with YFO. On the contrary, it asked YFO to withdraw its offer in order to allow the acquisition by Infroneer, at a lower purchase price, to happen. Toyo’s proposed appointments would allow Mr. Takezawa and Mr. Yabushita, who have thusly led a process that did not seriously consider YFO's offer, to maintain their positions under new titles (soudanyaku and komon) that would enable them to maintain significant influence over Toyo’s policies without accountability to shareholders. The appointment process for the new proposed appointment of directors is also led by a Nomination and Compensation Committee composed of these two directors and three outside directors who have condoned inappropriate management processes; no independence from management can be expected from the newly proposed candidates for outside directors. Above all, Toyo’s Board of Directors still holds the view that there are no governance problems. We cannot expect Toyo’s Board of Directors to be properly motivated to truly maximize corporate and shareholder value and to act on behalf of shareholders.

To ensure that Toyo’s board acts in the best interests of the company and its shareholders, we must rebuild the board. We need to upgrade management by electing directors who can implement growth-based business transformation, and truly independent directors who can provide effective management oversight. We humbly ask Toyo shareholders to vote FOR all of YFO's proposed director candidates and to OPPOSE many of Toyo’s proposed director candidates, so that the new board will have normal management discipline and will consider all options to maximize shareholder value.

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)