On August 17, 2020, Oasis submitted questions to FamilyMart Co., Ltd. (“FamilyMart” or “Company”) related to its press release dated August 14, 2020, which announced FamilyMart’s decision not to distribute a special dividend to shareholders.
In addition to sending these questions privately, Oasis is making these questions public in an effort to improve dialogue and understanding for all of FamilyMart’s shareholders. We eagerly await FamilyMart’s response to these questions.
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In its Aug. 14 press release, FamilyMart outlined two reasons for its decision not to conduct the special dividend, copied below:
Reason 1: (i) the special dividend could change the current structure of the Tender Offer where the Company expressed its position on the price offered in the Tender Offer (the “Tender Offer Price”) in specific and detailed terms, the Company did not recommend that its shareholders tender their shares in the Tender Offer and it left the decision of whether to tender shares in the Tender Offer to the shareholders, and therefore that could cause confusion for the shareholders; and
Reason 2: (ii) an unplanned outflow of funds could cause issues with the implementation of the measures that are planned to follow the completion of the Tender Offer, which the Company has supported.
FamilyMart echoed these remarks in a letter to Oasis dated August 14, 2020. In response to the Company’s statements in its press release and letter, Oasis would like to ask the following questions to the FamilyMart Board.
Related to Reason 1:
1. You have determined that 2300¥ per share is not a fair price. What is a fair price?
2. Does your statement in the letter that “FamilyMart has already indicated its position on the price offered in the Tender Offer” mean that FamilyMart’s Board of Directors has given up on enhancing the economic consideration for minority shareholders, while they failed to achieve a price at which the Board could recommend that shareholders tender their shares? You are still Board members of FamilyMart, with all the responsibilities that the position entails. Why would you give up?
3. The special dividend could only occur after the commencement of the Tender Offer, according to the Tender Offer documentation; as such, it would be reasonable for the Board to change its opinion after the commencement of the Tender Offer. Why does FamilyMart’s Board need to maintain its earlier decision, which was made at the time of the commencement of the Tender Offer, when (as we understand it) the Board had not yet considered declaring a special dividend?
4. By omitting language from the Tender Offer documentation which would allow them to suspend the offer in the event of a special dividend, Itochu has effectively written you a blank check, permitting you to name your price when it comes to any special dividend, and making it all far less confusing for shareholders. You could actively recommend the tender, rather than your current position of supporting the Tender, but leaving the decision to tender up to shareholders, without sharing an opinion on whether they should or should not. Shareholders look to management for guidance. You can give that to them if you simply fill in the blank check that Itochu gave you with a fair price. How is giving clear guidance that shareholders tender their shares for a fair price any less clear than your current stance of supporting the tender but not recommending that holders tender at that price?
5. If FamilyMart decides to pay a special dividend, Japan’s Financial Instruments and Exchange Act requires the Tender Offeror to extend the tender offer period by 10 business days. This extension is designed to prevent any confusion and to secure sufficient time for shareholders to make a decision. Please provide concrete evidence that led to the Board’s decision that this revision would “cause confusion”?
6. Why did FamilyMart endorse the Tender Offer if it does not agree on the price? FamilyMart should either oppose the Tender Offer since the price is unfair, or endorse the Tender Offer since the price is fair. At what price would you actively recommend that shareholders tender their shares?
Related to Reason 2:
The “measures” you mention would presumably be conducted after the tender offer goes through, when the Company is 100% owned by Itochu, and minority shareholders have been squeezed out. If you are not paying shareholders for the value of the synergies now, then why is this unplanned outflow of funds at all relevant to minority shareholders? By not paying out the dividend, you are not treating all shareholders equally. Instead, you are facilitating a bid that is advantageous for one shareholder at a price that’s unfair, and rejecting a special dividend for all shareholders in order to facilitate that bid.
7. Minority shareholders would not be able to receive benefits from the implementation of the measures that are planned to follow the completion of the Tender Offer. That is exactly why you must achieve fair value now for minority shareholders. However, FamilyMart’s Board has failed to achieve such fair value and does not recommend that shareholders tender their shares. Why did the directors decide to not declare a special dividend, and then share a reason (e.g., the measures that are planned to follow the completion of the tender offer) which minority shareholders will not be able to benefit from?
8. The outflow of the special dividend would ultimately be remedied by the Tender Offeror, as FamilyMart would ultimately become the wholly-owned subsidiary of the Tender Offeror. As such, if the Tender Offeror decides to proceed with the measures that are planned to follow the completion of the Tender Offer, the Tender Offeror would take specific measures to secure capital to do so. Why did the Board of Directors make a decision to not pay the special dividend, in light of these circumstances?
9. If FamilyMart claims that it cannot declare a special dividend since the capital is required to implement measures that are planned to follow the completion of the Tender Offer, please provide the related financial projections, including such measures to be implemented. The current valuation conducted by financial advisors says that it does not include any such benefits, according to this statement: “The synergies expected by the Transactions being completed is not reflected in the Consolidated Financial Forecast because it is difficult to specifically estimate those synergies at present.” What would be the value of FamilyMart including such benefits?