Information for Shareholders (regarding the open questions from the special committee)

Toyo released a “Notice Regarding Open Questions from the Special Committee” on April 6, 2023. We announce below our views regarding the open questions from the Special Committee.

1.    Inappropriate process by the current Board of Toyo and Special Committee

Toyo’s Board maintained its support for the tender offer by Infroneer Holdings Inc. (“Infroneer”) at a price of 770 yen per share in spite of its receipt of our proposal at a price of 1,000 yen per share (“Our Proposal”). Subsequently, Toyo has continued to take actions to block opportunities for shareholders to receive higher prices by, among other things, introducing a poison pill against Our Proposal (which was withdrawn the day before the 2022 annual general shareholders meeting due to lack of support from shareholders) and neglecting Our Proposal and our measures to improve corporate value for more than 270 days without sincerely considering them.

Under these circumstances, Toyo’s Board, after we pointed out its serious governance issues, established a special committee more than 270 days after Our Proposal, and has started to try to come up with alleged flaws in our financing or quantitative analysis of our measures to improve corporate value. It is clear that these open questions are part of that effort. Most recently, Toyo’s Board fabricated a “suspicion” about our “groundless” violation of the Foreign Exchange Act and the Financial Instruments and Exchange Act and announced that it provided the information to the relevant authorities. Shareholders with a long memory will recall with familiarity these allegations, because they are substantially the same groundless claims Toyo raised nearly a year ago, which we addressed publicly at the time, explaining our compliance – which no regulator has called into question. This renewed, groundless assault on our bid was maliciously conducted for the purpose of damaging our reputation and credibility. It was an ugly, desperate attempt by the Board to preserve their position, and act to eliminate a competing tender offer that they do not want. As noted below, the special committee’s recent conduct to collaborate with the Board’s efforts confirms our suspicions that they are not in any meaningful way acting as an independent arbiter, but instead, are mere window dressing for the Board’s efforts to thwart our bid. 

2.    “Deliberation” by “Special Committee” is Part of Inappropriate Board Process

We believe that the sudden, 9-month late establishment of a special committee by Toyo’s Board is part of Toyo’s plan to manufacture a pretextual reason to eliminate a competing tender offer that it does not want.

We have repeatedly pointed out the inevitably arbitrary nature of the outcome of the “process” established by the management of Toyo, taking into account, among other things, the background of the establishment of the special committee, its composition, the division of roles with the Board, the method of evaluating the improvement of corporate value set out for response by the special committee, and the discretion retained by the Board after receiving a report from the special committee.

While we have been asking substantive questions seeking to provide the Board an opportunity to address such concerns, the special committee has been focused on dressing up its formalistic aspects such as the number of meetings they hold and the appointment of a financial advisor. They have carefully avoided any clear responses to the substantive questions we raised as to the independence of the special committee such as its composition and scope, given the facts and circumstances of Our Proposal.

In fact, in light of the following objective facts, it is clear that the special committee is helplessly conflicted and cannot avoid making an arbitrary decision given its members participation in management’s flawed sale process to Infroneer and arbitrary defense measures to date.

a)         All members of the special committee are either members of the special committee formed at the time of Infroneer’s takeover proposal (approved as fair in part based on the openness to counterbids) or outside directors who approved Toyo’s efforts to actively preventing a higher-price counterproposal, including the introduction of a poison pill by the Toyo Board targeting our higher-priced counterproposal;

b)         Those members of the special committee who are Toyo’s outside directors have failed to fulfill their responsibility to effectively supervise management when, even after the withdrawal of the poison pill, they approved Toyo practically neglecting Our Proposal and our measures to improve corporate value for more than 270 days without sincerely considering them; and

c)         While dressing up as a “special committee,” it is actively participating in the Board’s efforts to make up reasons to reject Our Proposal through an unusual method of open questions about matters we have already responded to, acting as if the last 10 months of problematic Toyo Board conduct had not occurred.    

3.    Summary

Based on the above, it is clear that Toyo’s Board and the special committee will not properly and fairly consider Our Proposal from the perspective of improving corporate value and the interests of general shareholders. We are not planning to examine or discuss Our Proposal with such problematic Board of Toyo or the special committee. Therefore, our goal is to discuss Our Proposal and other proposals properly and fairly with a “new Board” rebuilt at this year’s ordinary general meeting of shareholders and a “new special committee” composed of members selected from among the “new Board” to maximize Toyo’s corporate value and shareholder value (please see our new policy published as of January 23, 2023[1], and subsequent press releases[2]).

4.      Information Disclosure to Shareholders

Since submitting Our Proposal to Toyo as of May 18, 2022, we have sincerely sought to implement Our Proposal and appropriately provide information to Toyo and to shareholders.

On the open questions from the special committee, we have previously disclosed a reasonable basis for our financial ability to implement the acquisition in the “Overview of Tender Offer” section of “Notice concerning Scheduled Commencement of Tender Offer for Shares of Toyo Construction Co., Ltd. (Securities Code: 1890)” dated May 18, 2022 (including subsequent changes, “Tender Offer Notice Press”), and we also responded to subsequent questions from Toyo[3].

• As stated above, we do not expect the problematic Board of Toyo or the special committee to sincerely examine or discuss Our Proposal. However, we intend to proactively disclose information to provide shareholders with an accurate understanding of Our Proposal, and we provide the below clarifications about our financial capabilities for that purpose:

• As stated in the Tender Offer Notice Press and in previous responses, we plan to use funds contributed by a collection of legal entities whose majority voting rights are owned either by Banjo Yamauchi, a member of a founding family of Nintendo Co., Ltd. (“Nintendo”), who is the representative partner and representative director of YFO, or his relatives (“YFO Group”) as well as loans from external financial institutions. On the other hand, since the YFO Group has assets exceeding the acquisition value (approximately 93 billion yen), loans from external financial institutions are not a condition precedent for the tender offer.

• The YFO Group manages and invests based on Nintendo shares and other assets which Banjo Yamauchi and others inherited from Hiroshi Yamauchi. Although we would not disclose their details as they include personal information related to personal assets of Banjo Yamauchi and his relatives, taking only the assets of Banjo Yamauchi, the fact that he inherited a significant number of Nintendo shares (4,291,200 shares based solely on publicly available information, and each of which shares was subsequently split into 10 shares upon a stock split) is publicly known information that can easily be confirmed through past media coverage. Banjo Yamauchi’s current asset size significantly exceeds the original amount of his inherited assets as a result of the rise in Nintendo’s stock price and other investment activities, and it easily exceeds the acquisition value. As just demonstrated, even if we look at only the portion of Banjo Yamauchi’s assets that is publicly available out of the YFO Group, it is clear that the YFO Group has the assets required to prepare funds for the acquisition. In addition, Banjo Yamauchi in fact has cash deposits and marketable securities in excess of tens of billions of yen, in addition to other publicly known assets.

• We plan to obtain an equity commitment certificate or loan certificate from the YFO Group at the instruction of Banjo Yamauchi and his relatives (we will also liquidate YFO Group assets to the extent necessary, no later than our submission of the equity commitment certificate or loan certificate to regulators). When conducting the tender offer, scheduled to commence around late September 2023, we promise to provide appropriate explanations and disclosures to relevant authorities depending on the investment structure and the details of the final financing, and to attach the equity commitment certificate or loan certificate to the tender offer notification.