The Case For Change at Toyo Construction
Maximizing Long-Term Value At Toyo
Yamauchi-No.10 Family Office seeks to maximize Toyo’s long-term corporate value, and shareholder value, by taking Toyo private at 1,000 JPY per share and undertaking value improvement measures to help Toyo fulfill its societal purpose as a maritime construction company. We believe this is the best path for Toyo and will benefit all its stakeholders.
Our all-cash 1,000 JPY acquisition proposal was initially proposed as a counterbid, responding to an inferior all-cash take-private deal with Toyo’s 20% strategic shareholder, Infroneer, at 770 JPY per share. Toyo’s board and management endorsed the Infroneer acquisition without any market check, stating that the tender offer period provided an opportunity for competing offers to emerge. YFO made its proposal during the tender offer period, first privately and then publicly. In May 2022, Infroneer’s 770 JPY offer expired as the minimum tender condition was not fulfilled; Toyo shareholders overwhelmingly rejected Infroneer’s inferior proposal. However, the Toyo board and management team virtually ignored our superior offer, repeatedly placing roadblocks in our path to maximizing shareholder value. Over the past eight months, as we have attempted to convince Toyo’s board to consider our proposal, we discovered Toyo’s board operates the company as its own personal fiefdom, riddled with countless serious governance flaws and oversight failures. We also identified gaps in Toyo management’s ability to lead the company and pursue the corporate value improvement measures that Toyo desperately needs. As a result, we concluded that we must replace Toyo’s board with a new slate of directors, independent of YFO, which can impartially consider the strategic options available to Toyo and lead Toyo into a new phase of growth.
We urge all Toyo shareholders to confirm their shares are held in common stock and not on loan as of the March 31, 2023 record date for Toyo’s upcoming June 2023 annual meeting so that they can vote for a new board that will prioritize value maximization over entrenchment, restore transparency in the face of governance failures, and ensure that unbiased decisions prevail over stubborn intransigence. Our nominees will bring unique perspectives and important skills to a board desperately in need of independence. Moreover, our nominees will share a commitment to strong shareholder governance, and have the fiduciary constitution required to resist Toyo management’s legacy of dismissing value-creative proposals.
When it endorsed Infroneer’s go-private offer, how did Toyo’s board measure up to basic shareholder expectations?
What Shareholders Expect
Conduct a market check to search for competitive proposals
What Toyo Did
Did not solicit competing offers.
Indicated a 30-business day tender period provided adequate opportunity for competing bids.
What Shareholders Expect
Actively pursue all alternatives to maximize shareholder value
What Toyo Did
Ignored a private letter with a superior, higher-priced, denouncing it as insufficiently concrete.
When the superior bid was made public, responded with a poison pill.
Failed to seriously consider our bid in the past eight months.
Failed to engage with other PE funds who reached out.
What Shareholders Expect
Establish a special committee of outside directors to consider competing offers from the offer supported by management
What Toyo Did
Told YFO that Toyo cannot disclose their “real” reason for rejecting YFO’s proposal, so Toyo will have to “make up” a different reason.
What Shareholders Expect
Transparently disclose the reasons for pursuing (or not pursuing) the alternative transactions that emerge from a market check process
What Toyo Did
Indicated it would establish a special committee, but failed to do so over a period of eight months
while
Formed a special committee to consider Infroneer’s inferior offer within a month of receiving the offer, and approved the deal in a matter of weeks.
What Shareholders Expect
Independent directors lead the sale process to ensure that value is maximized for all shareholders
What Toyo Did
Allowed management to reject a number of competing bids, including YFO’s written bid, without going through any independent board process.
Failed to take corrective action in response to YFO’s written requests to do so.
What Toyo Needs from its Board and Management
Vs. Toyo’s Current Reality
What Toyo Needs
A clear management strategy with specific milestones for its growth areas, including offshore wind.
What Toyo Has Now
No strategy for its business growth areas
No management strategy for offshore wind
What Toyo Needs
A strategy based on real numbers and projected returns on investment for the measures proposed to be taken
What Toyo Has Now
A list of meaningless “buzzwords”, without quantitative analysis of how the planned measures will impact Toyo’s growth
What Toyo Needs
Supervision of management, particularly in areas where management may have different interests from shareholders
What Toyo Has Now
A docile board that follows management’s direction, whether in relation to a sale of the company, its governance processes or its public disclosure obligations
Offer Structure and Outcome
Infroneer Holdings Tender Offer
Tender offer for 100% of Toyo Construction’s outstanding shares. Agreed privately between Infroneer and Toyo management.
Toyo response: Maintained assent to offer even after YFO’s superior proposal. Failed due to lack of shareholder tenders.
YFO Proposal
Tender offer for 100% of Toyo Construction’s outstanding shares. Submitted as legally binding proposal during the Infroneer tender offer period intended to represent a ‘market check.’
Toyo response: Introduced a poison pill, withdrew it one day before the Annual Meeting, reportedly due to voting cards received from many shareholders voting against it.
Relationship with Toyo Construction
Infroneer Holdings Tender Offer
Infroneer was Toyo’s largest shareholder, its subsidiary Maeda having held 20% of the outstanding shares for about 20 years. Maeda held a board seat for much of this time.
YFO Proposal
Third party independent of Toyo’s board and management. Acquired all shares following the launch of Infroneer’s tender offer. No board representation.
Price
Infroneer Holdings Tender Offer
JPY 770 per share.
Toyo’s special committee asked for renewed negotiations, but Toyo’s board simply supported Infroneer’s offer.
YFO Proposal
JPY 1,000 per share.
Time between Proposal and Board Approval
Infroneer Holdings Tender Offer
20 calendar days (13 business days).
YFO Proposal
300 calendar days and counting
Management Policy Post-Acquisition
Infroneer Holdings Tender Offer
Vague plan to “discuss” with Toyo post-acquisition.
YFO Proposal
Submitted over 100 pages of value enhancing proposals, which were privately discussed at length with Toyo.
Employee Treatment
Infroneer Holdings Tender Offer
Not provided in the tender offer registration statement.
YFO Proposal
Offered to commit to long-term continued employment for current Toyo employees.
