Brandes is a U.S.-based investment management firm founded in 1974 with individual and institutional clients worldwide. The firm utilizes a value strategy and often invests in companies when they are unpopular or under-appreciated. Brandes tends to be a patient, long-term shareholder and does not engage in short selling. As a strong supporter of Japan's Stewardship and Corporate Governance Codes, Brandes takes a positive approach to engaging with corporate managements both in Japan and in the other countries where it invests.
Brandes began acquiring shares of the Company on behalf of clients in 2007, and added shares throughout and following the global financial crisis. During this long period, Brandes has had numerous discussions in person and through letters with Company management regarding the Company's corporate governance practices, excess capital, low ROEs, and since 2013, the significant real estate assets left idle following the departure of its tenant.
The Company's ROEs have been low for a very long time, in large part because the Company maintains significant excess cash and investments which Brandes believes are not required to support core operations. Brandes has long advocated that management address this issue by announcing a plan that articulates what it believes is the right level of operating capital, and to reduce the excess through consistent proportional dividends to shareholders or share buybacks2.
Since 2013, the idle Sanki Yamato Site has also been an extremely inefficient use of capital resources and a drag on shareholder returns. Even while idle, the site has incurred operating and maintenance costs that have burdened the Company and its shareholders. Brandes has been advocating for a resolution of the situation, proposing a variety of potential options to management, including the sale of this non-core asset.
In November 2016, the Company announced its intent to invest significant capital to redevelop a major portion of the Sanki Yamato Site in order to create a lavish and excessive training and research center. As a long term shareholder, Brandes supports investing capital for the long term future as long as the returns on that capital can be justified. Unfortunately, following numerous discussions, the Company has failed to articulate why the investment was the best decision from a long term return maximization standpoint, and how this significant investment would benefit all its stakeholders, including shareholders.
For the upcoming Annual General Meeting, Brandes intends to vote against all directors up for re-election to the Company's board of directors in order to demonstrate its dissatisfaction with the Company's capital allocation policies and weak governance, which are at odds with Japan's recently adopted Corporate Governance Code. Unfortunately, the recent decision to invest significant capital in a project that is scaled well beyond what seems appropriate, suggests that the current management team is unlikely to improve upon the Company's long history of sub-par returns.
About Brandes Investment Partners, L.P.
Brandes is a U.S. registered investment advisor founded in 1974. Located at 11988 El Camino Real, Suite 600, San Diego, California, 92130, Brandes manages approximately US$29.8 billion on behalf of institutional and individual investors worldwide, as of March 31, 2017. For more information, please refer to the firm's Japan website at https://www.brandes.com/japan.
The above information is based on the following conditions; please understand fully:
This statement is not intended to advocate the purchase or sale of the Company's stock. This statement is based on information currently available as of the date of this announcement. Brandes has acted in full caution and on best effort, but cannot guarantee that the information is correct. This statement is not intended to influence the share price of the Company.
Shingo Omura, CFA
Brandes Investment Partners, L.P.