AVI submit shareholder proposals to Tokyo Radiator

Asset Value Investors (AVI) submits shareholder proposals to Tokyo Radiator, a subsidiary of Marelli, to address the weak governance of the listed-subsidiary structure

AVI is calling on its fellow minority shareholders to express their disapproval of the board of directors' disregard for minority interests, by voting in favour of these proposals:

-       special dividends equivalent to the past deposits to Marelli;

-       transition to a company with an audit and supervisory committee;

-       establishment of a nomination committee and a compensation committee chaired by independent outside directors;

-       abolishment of senior advisory positions (Komon and Soudanyaku);

-       introduction of stock-based compensation system for directors.

London, 23 May 2022 - Asset Value Investors ("AVI") today announces that it has submitted shareholder proposals to Tokyo Radiator Mfg. Co. Ltd. (TYO 7235, "Tokyo Radiator"), a subsidiary of Marelli Corporation ("Marelli"), to address conflicts of interest between the parent company and minority shareholders arising from Tokyo Radiator's listed subsidiary structure.

AVI's full shareholder proposals and a presentation outlining AVI's arguments are available on the website www.assetvalueinvestors.com/tokyo-radiator/.

Joe Bauernfreund, CEO of AVI, comments: "For almost five years, we have been in communication with Tokyo Radiator; Marelli, which holds approximately 40.1% of Tokyo Radiator's shares; and Marelli's parent company KKR, to resolve governance issues caused by Tokyo Radiator's listed subsidiary structure and enhance Tokyo Radiator's corporate value. We submitted shareholder proposals in June 2021 as part of our engagement activities, but, since then, Tokyo Radiator has continued to ignore our proposals and has made little effort to improve its weak governance."

In particular, AVI called on Tokyo Radiator to abolish the cash deposit system with Marelli, where approximately JPY 4.1 billion[1] of cash, equivalent to 47% of Tokyo Radiator's market capitalisation of JPY 8.8 billion[2], was lent to Marelli. As pointed out in 'Practical Guidelines for Group Governance Systems' by the Ministry of Economy, Trade and Industry, the deposit system is a cheap source[3] of funds for Marelli. The system benefits only Marelli at the expense of minority shareholders who suffer from a return on the cash investment far below Tokyo Radiator's cost of capital. Such conflict, in turn, leads to a low valuation (price-to-book ratio of 0.4x[4]).

While Marelli recorded losses for the past four fiscal years, Tokyo Radiator continued to deposit cash to Marelli until shortly before Marelli entered into a debt restructuring on 1 March 2022, despite the risk that the deposits would not be returned in the event of Marelli's bankruptcy. The continued depositing of cash with such a poor-quality counterparty was a potential breach of Tokyo Radiator's Board's duty of care. AVI supports the return of the deposits to Tokyo Radiator, but has nonetheless submitted shareholder proposals to ensure that such a practice is not reinstated again and that the deposits are returned to shareholders on an equal basis.

Other shareholder proposals call for the transition to a company with an audit and supervisory committee; the establishment of a nomination committee and a compensation committee chaired by independent directors; and the abolishment of senior advisory positions (Komon and Soudanyaku) to enhance the governance. In addition, AVI proposes introducing a stock-based compensation scheme for directors, which would provide greater incentives to increase corporate value and align interests with shareholders.

AVI asks its fellow minority shareholders to express their disapproval of the board of directors' disregard for minority interests, by voting in favour of the shareholder proposals.

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Note to editors

Tokyo Radiator is held in AVI Japan Opportunity Trust ('AJOT').

AVI at a glance

AVI is a London-based investment management company that has been investing in Japanese equities for more than 20 years. AVI was established in 1985 and has been investing in the equity markets for more than 35 years. AVI's investment team is committed to contributing to sustainable improvements in corporate value by engaging with the management teams of its portfolio companies, with approximately JPY 78 billion invested in Japanese equities.

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Asset Value Investors

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