Oasis Announces Campaign to Improve Ain Corporate Governance (Stock Code: 9627 JT)
Oasis Management Company Ltd. ("Oasis") is the manager to funds that beneficially own approximately 15.1% of pharmacy franchise Ain Holdings Inc. (9627 JT) ("Ain" or the "Company"). Oasis has adopted the Japan FSA's "Principles for Responsible Institutional Investors" (a/k/a the Japan Stewardship Code) and, in line with those principles, Oasis monitors and engages with its investee companies.
In the interest of improving Ain's corporate value, Oasis strongly urges its fellow shareholders to vote AGAINST the Company's proposed "outside" director candidate, Mr. Shigeki Kimura, and to vote FOR the Oasis shareholder proposals at the Company's upcoming AGM:
- Vote AGAINST: The appointment of Mr. Shigeki Kimura
- Vote FOR: Dismissal of board directors Mr. Shigeru Yamazoe and Mr. Junro Ito
- Vote FOR: Election of four new outside director candidates: Mr. Yoshitake, Mr. Maeda, Mr. Dmitrenko, and Mr. Shinmori
- Vote FOR: Introduction of a new compensation plan for outside directors
Background ? Ain's scandal & corporate governance failures
In late 2023, two directors from Ain and one of its subsidiaries were arrested and subsequently found guilty of "Obstruction of Auctions Related to Public Contracts" by a court of first instance in connection with activities at the KKR Sapporo Medical Center. The investigation report by Ain's "External Investigation Team" revealed that Ain had repeatedly replaced submitted proposal documents after the submission deadline on multiple occasions. Further, in the KKR Sapporo Medical Center case, it was found that Ain illicitly obtained information from a KKR Sapporo Medical Center employee to gain an unfair advantage over competitors in the bidding process.
Following the incident, Ain set up an "Investigation Team", albeit with no guarantee of real independence. This is against the best practices and relevant guidelines which recommend the establishment of an independent third-party committee. The existence of this "Investigation Team" was not disclosed until the fact that the two directors from Ain and one of its subsidiaries were found guilty was made public. Moreover, Ain's management has only offered questionable and unclear statements related to the scandal. Further, Ain's outside directors and outside auditors have continuously refused any opportunity to directly discuss the situation with Oasis, the Company's largest shareholder. Without meeting Oasis, it has been announced that they will be retiring from their roles.
The shocking arrests and document-replacement practices at the heart of the KKR Sapporo Medical Center case, as well as the Company's responses thereafter, underscore serious concerns about Ain's business ethics, compliance failures, poor corporate governance, and insufficient oversight. However, we do not believe that this incident is an isolated event given numerous serious issues Oasis has identified at Ain that we believe highlight pervasive problems of inadequate governance as well as the Company's responses thereafter. These examples include, but are not limited to:
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Dysfunctional Board of Directors and Board of Corporate Auditors: It appears that Mr. Otani has maintained practical control over the selection of board members. It seems that his choices are not made in the best interests of shareholders and Ain, but rather with the aim of creating a group of allies for his own self-preservation. As a result, all current outside directors and outside corporate auditors lack true independence; two of them are from Marubeni and Seven & i, companies with which Ain has capital and business alliances and other relationships, creating a clear conflict of interests.
In particular, we have had serious concerns about the qualifications of outside director Mr. Yamazoe from Marubeni, who was previously dismissed as a director by Fujitec. After Oasis submitted a proposal calling for the dismissal of Mr. Yamazoe, Oasis understands that our concerns were acknowledged by the Company, which announced his retirement from the role.
Additionally, the retirement of two outside corporate auditors who have failed to pursue accountability against the directors has been announced. Oasis understands these retirements too to be an acknowledgement of the concerns Oasis has shared with Ain.
Despite this acknowledgement, we are deeply concerned that the announced changes to the board have resulted in an outside director ratio of less than 50%, at a time when independent oversight is vital.
- Board's Opposition to Oasis proposals for the sake of opposition: The Company's responses and opposition to Oasis's shareholder proposals are weak and illogical. For example, regarding our proposed director candidate Mr. Yoshitake, the Company stated that it "acknowledges, through the interview with him, the high level of expertise in compliance and internal audit that has been claimed he has, and highly respects his expertise". Yet, the Company opposed his appointment, despite them acknowledging he has the skills Ain needs the most at the moment. The Company's opposition to our additional director candidates follows the same pattern. It seems that the Company's board is opposing for the sake of opposition, rather than sincerely considering who would be the best directors to enhance corporate value.
- Last Minute Switch to Evade Shareholder Accountability: Ain has taken a shocking step by nominating Mr. Ito's subordinate, Mr. Kimura, as a director candidate, while not renominating Mr. Ito himself, who faces a proposal for dismissal. This move allows Mr. Ito to escape accountability to shareholders, while maintaining substantive influence over Ain through Mr. Kimura. This action clearly goes against the best practices of corporate governance.
- The Alliance with Seven & i Holdings: Not only did Ain's capital and business alliance with Seven & i result in a significant dilution for Ain's other shareholders through an unnecessary third-party allocation to Seven & i, but it has also failed to achieve any practical synergies or add profitability over the last 15 years. On the other hand, not only has there been a designated outside director seat for Seven & i executives at Ain continuously, but the Company proposed the nomination of Mr. Kimura from Seven & i as an outside director at this year's AGM.
- No Independent Oversight of Management: The absence of appropriate independent oversight of CEO Mr. Otani has also had detrimental effects on Ain's performance. ROE has fallen to 8%, which is considered the minimum acceptable level; TSR has underperformed the TOPIX index by -127.5% over a 5-year period; and EV/EBITDA has fallen over time, especially in recent years.
It is obvious that the current state of Ain is unacceptable. The current so-called independent directors have failed to provide the necessary oversight, leaving Mr. Otani unchecked and unaccountable. This lack of true independence endangers the interests of all stakeholders. Immediate change is imperative ? shareholders must unite to add real independence to Ain's board and focus on enhancing corporate governance. The time for action is now.
Therefore, in order to pave the way for Ain's success as a leading player in the pharmacy industry, Oasis urges all shareholders to VOTE AGAINST the appointment of Mr. Kimura and to VOTE FOR Oasis's proposals to add true independence and oversight to the board.
Seth Fischer, Founder and Chief Investment Officer of Oasis commented:
"Despite being Japan's largest pharmacy chain, Ain is in a disappointing state. With a truly independent board in place, Ain will finally escape the poor management it has faced for decades. However, staying complacent will be at the cost of all stakeholders. The industry is increasingly competitive, and Ain will be quickly overtaken. To avoid this, shareholders must work together now to improve corporate governance."
To learn more about Oasis's proposals, please visit www.AinCorpGov.com. We welcome all stakeholders to contact Oasis at [email protected] to help improve Ain's Corporate Governance.
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Oasis Management Company Ltd. manages private investment funds focused on opportunities in a wide array of asset classes across countries and sectors. Oasis was founded in 2002 by Seth H. Fischer, who leads the firm as its Chief Investment Officer. More information about Oasis is available at https://oasiscm.com. Oasis has adopted the Japan FSA's "Principles for Responsible Institutional Investors" (a/k/a Japan Stewardship Code) and, in line with those principles, Oasis monitors and engages with our investee companies.
The information and opinion contained in this press release (referred to as the "Document") is provided by Oasis Management Company ("Oasis") for informational purposes only or for reference purposes only. The Document is not intended to solicit or seek shareholders to, jointly with Oasis, acquire or transfer, or exercise any voting rights or other shareholder's rights with respect to any shares or other securities of a specific company which are subject to the disclosure requirements under the large shareholding disclosure rules under the Financial Instrument and Exchange Act. Shareholders that have an agreement to jointly exercise their voting rights are regarded as Joint Holders under the Japanese large shareholding disclosure rules and they must file notification of their aggregate shareholding with the relevant Japanese authority for public disclosure under the Financial Instruments and Exchange Act. Except for the case where Oasis expressly enters into the agreement as a joint holder requiring such disclosure, Oasis does not intend to take any action triggering reporting obligations as a Joint Holder. The Document exclusively represents the opinions, interpretations, and estimates of Oasis.
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