As of this week, Neuberger Berman has announced that the firm is seeking improved disclosure from Daibiru Corporation (below, “Daibiru”, the “Company”) regarding its decision to support its parent company and controlling shareholder, Mitsui O.S.K. Lines’ (“MOL”) tender offer for the Company’s common stock.
Neuberger Berman has been a long-term shareholder of Osaka-based property developer, Daibiru, and has been engaging with the Company on its capital management, corporate governance, and financially material environmental and social issues to support the Company’s efforts to achieve sustainable growth and increase value. With respect to requests for greater capital efficiency, the firm has previously asked management to deliver on its commitment to grow its real estate portfolio in a timely manner based on its mid-term plan while optimizing its balance sheet to address the surplus capital, cross-shareholdings, and real estate assets that have historically weighed on the firm’s return on equity. The Company’s lack of progress on those issues prompted the firm to vote against President Toshiyuki Sonobe at the June 2021 annual shareholders meeting, which was pre-disclosed as part of our advanced proxy voting disclosure initiative, NB Votes. We invite anyone interested to understand further our position by clicking on Daibiru under Capital Deployment on our NB Votes page.
With respect to corporate governance, our engagement has focused on improving the Company’s board independence to protect minority shareholders’ rights in the face of potential conflicts of interest with MOL, which holds 51.91% of Daibiru’s outstanding shares. We have also held constructive discussions on board diversity of gender and skillset, which we regard as important factors to promote objective and dynamic boardroom discussions on the Company’s long-term strategy. Finally, on financially material environment and social issues, our discussions revolved around mitigating the environmental footprint of the property business and to improve disclosure in-line with internationally recognized ESG disclosure standards such as the Sustainability Accounting Standards Board (SASB) and the Task Force on Climate-Related Financial Disclosures (TCFD).
On November 30, 2021, Daibiru announced that the Company’s Board has decided to support MOL’s tender offer at 2,200 yen per share of the Company’s common stock. The deal, if successful, would result in Daibiru becoming a wholly-owned subsidiary of MOL and lead to the eventual delisting of the Company. In its press release, the Company cited its publicly listed status as an impediment to its ability to leverage fully management resources with its parent and that becoming a wholly owned subsidiary would lead to positive synergies to accelerate growth in both the Japanese and overseas property markets. As a longstanding shareholder of Daibiru, we were disappointed that the Company ultimately decided to relinquish its public status rather than to remain listed and pursue long-term growth of corporate value for the sake of all minority shareholders. However, we respect the Board’s decision and wish the Company nothing but success in its endeavors to become one of Japan’s leading property development companies.
Neuberger Berman’s focus now shifts to how Daibiru’s decision would ultimately impact our and other public shareholders’ stake in the Company’s shares. In its press release, the Company explained that the tender offer is being presented at “an appropriate price that ensures the benefits of general shareholders” and that the decision was based on “multiple and sufficient negotiations with the Tender Offeror (MOL), with the substantial involvement of the Special Committee”1,2. However, we believe that the explanation leaves unanswered several questions on how Daibiru’s Board and the Special Committee determined that the proposal was in the best interest of the Company’s public shareholders.
Our key concern is the lack of transparency surrounding Daibiru’s Board and the Special Committee’s decision-making process that determined that the 2,200-yen price per share reflected properly the fair value of the Company.
According to the press release’s timeline of events, on November 17, 2021, MOL made a final proposal for the tender offer at 2,100 yen per share. A week later, on November 24, 2021, Daibiru judged that the 2,100 yen-per-share offer was insufficient compared to other similar transactions and inconsistent with the results of the valuation appraisals of financial advisors that represented both the Company and its Special Committee. Hence, Daibiru suggested to MOL a counteroffer of 2,200 yen per share. The following day on November 25, 2021, MOL accepted this counteroffer and Daibiru’s Board voted to support the proposal at 2,200 yen per share on November 30, 20213.
In the Company’s press release, the Company references the financial advisors’ Share Valuation Reports to support the tender offer. However, the valuation calculation methods noted in the Reports include methodologies based on the historical market price of the Company’s shares, relative comparisons versus peers, and discounted cash flow, but omits the adjusted net book value method. Given that Daibiru is a property development company with sizeable office, commercial and residential real estate assets held on its balance sheet that were reported at a combined book value of 337 billion yen (equivalent to more than double the Company’s shareholders’ equity) during the March fiscal year-end period of 20214, we believe an appropriate valuation calculation method should reflect the underlying value of those assets. In fact, that methodology was what Daibiru employed to assess the valuations of its property as recently as May 2021 in its full-year earnings presentation material5. Furthermore, the financial advisors’ Share Valuation Reports were submitted to Daibiru’s Board and the Special Committee on November 29, 2021—five days after the Company made the counteroffer to MOL. Hence, we are left with questions as to how the Company was able to determine that 2,200 yen per share was an appropriate value for the Company’s shares without a final version of the Share Valuation Reports to indicate an acceptable valuation range.
Following the Company’s November 30, 2021 announcement, Neuberger Berman has engaged the Company seeking clarity on the above issues. We have requested that the Company release minutes of the Special Committee’s deliberations that took place over 16 hours in nine meetings between September 26 – November 29, 2021. The Company has declined to offer further details than what it has already been disclosed in the press release, citing its confidentiality agreements with the financial advisors and the fact that the Special Committee meetings were held in closed-door sessions. It is our view that the purpose of the Special Committee is to oversee the transaction for the protection of minority shareholders. Therefore, we find it somewhat difficult to understand why the Company should not be willing to disclose what was discussed among Committee members leading up to the Company’s decision to support the deal.
It is for these reasons that we have decided to voice our concerns publicly with the hope that the Company will uphold its fiduciary duty to minority shareholders and comply with the Corporate Governance Code’s General Principle #3, which stipulates that “Companies should appropriately make information disclosure in compliance with the relevant laws and regulations but should also strive to actively provide information beyond that required by law. This includes both financial information, such as financial standing and operating results, and non-financial information, such as business strategies and business issues, risk and governance”.6
We believe additional information regarding the above points would be crucial to determine whether MOL’s proposed offer accurately represents Daibiru’s corporate value and would be in the best interests of minority shareholders including Neuberger Berman. We respectfully request that Daibiru take appropriate action in a timely manner.