An UK based fund management company, Asset Value Investors (AVI), will submit their proposal at the 91st Annual Meeting on June 28th, which challenges inexplicable and, from their point of view, rather enigmatic shareholdings of a broad casting giant, TBS Holdings (TBS). https://www.improvingtbs.com/the-shareholder-proposal/

The outline of their proposal is as follows:
“In addition to any dividend proposed by the Company’s Board of Directors and approved at the 91st Annual Meeting, the Company shall pay an in-kind dividend from capital surplus”

According to the proposal, in-kind dividend is 3,064,414 shares (40%) of common stock of Tokyo Electron Company, Ltd (TEL).

The rationale behind their proposal is that conventional strategic shareholdings and cross-shareholdings impede efficiency of capital held by a Japanese company. TBS’s excess capital and securities portfolio, in particular, expose shareholders of the company to risks of a few companies, one of which is TEL without substantial business transactions with TBS.

AVC explain, this point as follows:
Within the “strategic stock” portfolio, the Company’s exposure to Tokyo Electron (TEL) is of greatest concern, accounting for over 19% of total assets and 35% of the portfolio. This level of concentration exposes TBS to the vicissitudes of financial markets; something TBS has failed to provide a valid reason for.

In order to rationalize their assertion, AVI cited Principle 4-1 of the Corporate Governance Code which requires companies to disclose their policy with respect to cross-shareholdings and examine their risks.

While I am basically on the same side with the AVI’s assertion, I have a couple of points to address here with regards to this issue.


We should argue cross-shareholdings separately from strategic shareholdings. Cross-shareholdings unquestionably malfunction because by mutually having voting rights, one side of cross-shareholders implicitly ignores the other cross-shareholder’s negligence of their accountability and vice versa. It results in impairing interests of minority shareholders and in inactive management which tends to avert aggressive and strategic business decisions for future growth of corporate values and to make decisions based on dependent relationship. This is one of root causes for the missing decades in the Japanese economy.

Strategic shareholdings, on the other hand, may bring the shareholder high returns on investment and it may lead to future growth of corporate values as long as the strategic partnership works very well. In the case of TEL stock held by TBS, it is a strategic shareholdings. It obviously, however, the strategic partnership does not work well or even does not exist. So, a real problem here is that the management of TBS is missing opportunities for future growth of corporate values by just sitting on the excess assets which have been dormant for many years. From this point of view, I appreciate AVI’s action because it may crack a chink to the enigmatic wall (strategic shareholdings and cross-shareholdings) with which Japanese companies are encircled in a field of nonperforming capital.

By Masatoshi Yasuda