MIGO Opportunities Trust PLC GBP · LSE:MIGO
MIGO Opportunities Trust PLC GBP — Asset Value Investors — Proxy Contest (June 2018)
15 slides from MIGO Opportunities Trust PLC GBP's proxy contest presentation, Jun 20, 2018
Slide 1: AVI Shareholder Proposal to TBS Holdings: A First Step Toward Phasing Out Strategic Shareholdings
AVI SHAREHOLDER PROPOSAL TO TBS HOLDINGS: A FIRST STEP TOWARD PHASING OUT “STRATEGIC SHAREHOLDINGS” 1
Slide 2: Introduction to AVI
Introduction to AVI • Fund manager based in London with more than ¥160 billion in assets under management. • Serves as investment manager for British Empire Trust, the shareholder of 1.9% of TBS’s outstanding shares. • AVI focuses on companies, like TBS, trading at discounts to net asset value. • AV
Slide 3: Why Japan?
Why Japan? • Attractive valuations: MSCI TOPIX1 S&P 15001 Europe1 EV/EBIT 11x 20x 15x 5 Year operating profit 31% 28% 24% growth • Corporate governance reform, changing attitudes as catalysts • Overcapitalised balance sheets: • Japanese market appears to be MSCI % of companies TOPIX1 S&P 15001 Europ
Slide 4: Why AVI Invested in TBS
Why AVI Invested in TBS • TBS’s abnormally large holdings of non-core investment securities and real estate are an extreme example of a larger phenomenon that has unnecessarily depressed corporate value in Japan for many years • TBS is a test case and opportunity to take a first step toward addressi
Slide 5: ISS Reasons for Supporting AVI Proposal
ISS Reasons for Supporting AVI Proposal • Fortuitous recent rise in value of Tokyo Electron stock hides market’s poor perception of TBS’s core broadcasting and non-core real estate business. Tokyo Electron’s long term results have been much lower (4.1% growth since 1984). • TBS’s enterprise value (m
Slide 6: Timeline of Engagement
Timeline of Engagement Date AVI Request TBS Response April 2017 • Please consider measures to address No response undervaluation Sept-Oct 2017 • Please explain rationale of “strategic • “Strategic holdings” necessary to maintain relationship of trust holdings” with important partners, especially in
Slide 7: The Shareholder Proposal
The Shareholder Proposal Pre-Distribution Post-Distribution Shareholders Shareholders 1.9% stake 2.8% stake Structural 0% 4.7% stake Discount Distribute 40% TEL shares to Structural discount TBS shareholders Discount 14% yield on market cap 7
Slide 8: Consensus Regarding Strategic Holdings
Consensus Regarding Strategic Holdings • There is now a clear consensus in Japan, reflected in the Corporate Governance Code, that “strategic holdings” are difficult to justify and should presumptively be eliminated: “Principle 1-4: When companies hold shares of other listed companies as cross- shar
Slide 9: TBS Failure to Explain or Justify
TBS Failure to Explain or Justify • TBS’ “strategic holdings”, starting with its stake in Tokyo Electron, are abnormally large. • TBS has not articulated a persuasive strategic rationale for its ownership of Tokyo Electron or other “strategic holdings”. 9
Slide 10: Why are strategic holdings bad for shareholders?
Why are strategic holdings bad for shareholders? • “Strategic holdings” locked inside TBS suffer a substantial discount compared to their true market value. 34% 183% 200% 180% 46% 160% 140% 69% % of Market Cap 120% 100% 100% 80% 60% 25% 40% 20% 10% 0% Net Cash Operating Non-Core Real Tokyo Electron
Slide 11: Why strategic holdings are bad for shareholders?
Why strategic holdings are bad for shareholders? • Risk management: Two stocks, Tokyo Electron and Recruit, account for 63% of TBS’ market cap and 30% of total assets. • TBS is in substance an investment fund, not a broadcasting company. A professional investment manager that assembled a portfolio t
Slide 12: Why are strategic holdings bad for shareholders?
Why are strategic holdings bad for shareholders? • Cross-shareholdings shield TBS management from accountability to TBS general shareholders. Cross-held Companies % of TBS % held TBS Outside Director Owned by TBS Owned Mainchi Newspapers 1.9% 0.7% Yutaka Asahina Dentsu 1.3% 1.4% Tadashi Ishii MBS Me
Slide 13: What are TBS' Objections to the Proposal?
What are TBS’ Objections to the Proposal? • Tokyo Electron acquired at low cost many years ago, therefore shareholders have “nothing to lose” if the share price goes down • Needed to fund future capital expenditures • Tax and technical issues 13
Slide 14: In Conclusion
In Conclusion • TBS suffers a substantial discount due to its excessive securities portfolio • The concentration and magnitude of TBS’ securities portfolio exposes TBS shareholders to undue risk • Principle 1-4 of the Corporate Governance Code puts an obligation of TBS to reduce and ultimately elimi
Slide 15: Q&A
Q&A For any follow on questions please get in touch: – Joe.Bauernfreund@assetvalueinvestors.com – Daniel.Lee@assetvalueinvestors.com Or – IFC: Takee, Kamiya, Suzuki Tel: +81-3-5532-8925 e-mail: h-kamiya@ifcpr.co.jp For more information see www.improvingtbs.com 15