Hibiki Path Advisors Website

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07/Jul/2024 – About AGM of TBS HOLDINGS

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Hibiki Path Advisors (hereafter “Hibiki” or “We”) made a shareholder proposal regarding the appropriation of retained earnings (dividend increase) at the 97th Annual General Meeting of Shareholders of TBS Holdings, Inc. (hereafter “TBS”), held on June 27. This proposal was listed as Item No. 6 (please refer to this link for the specific details of our proposal).

According to the extraordinary report submitted by TBS on July 1, Item No. 6 received 15.0% support. We sincerely thank the many shareholders who supported our proposal. Although the proposal was turned down, given the recommendation from Institutional Shareholder Services, a major proxy advisory firm, and with the substantial number of shareholders who supported the proposal, we believe this sends a clear message to the TBS Board of Directors that shareholders want management to make a stronger commitment to delivering shareholder returns.

If we exclude approximately 459,000 voting rights held by TBS-related parties or cross-shareholders¹ , (estimated from the top 11 shareholders listed in the summer 2024 issue of Toyo Keizai Inc’s Shikiho), Item No. 6 garnered about 24% support from general individual and institutional investors. This indicates that general shareholders, free from cross-shareholding influences, are demanding more aggressive measures regarding the Company’s capital policy.

Furthermore, at this General Meeting of Shareholders, the proposal for the reappointment of Mr. Sasaki², the top management, received a 73.4% approval rate. For Mr. Sasaki’s reappointment proposal, excluding the votes of company-related parties and cross-shareholders³ , the approval rate from general individual shareholders and institutional investors was below 63%. This indicates that a substantial number of general shareholders and institutional investors continue to oppose the reappointment for the second consecutive year.

In May this year, TBS announced the “Medium-term Management Plan 2024-2026 VISION2030 Ph.2.” While the business growth strategy presented is commendable, we find the capital return plan significantly lacking. Although they aim for a 5% ROIC by 2030, propose shareholder returns of about 60 billion yen, and the sale of policy-holding stocks worth over 90 billion yen over three years, these figures are minimal compared to the over 1 trillion yen in securities holdings, which account for two-thirds of the company’s total assets. It is hard to say that TBS is committed to fundamental balance sheet management and capital efficiency improvement to maximize corporate value.

We believe that the announcement of such a level of shareholder return plan at TBS indicates that the company is not being managed with full awareness of investors’ viewpoints. Many shareholders recognize these issues, and we feel that addressing fundamental balance sheet issues and incorporating the opinions of non-cross-holding shareholders is essential for improving the approval rate of the top management.

Regarding policy-holding stocks, TBS continues to provide outdated explanations such as “to maintain and strengthen business relationships” and “to maintain and strengthen alliances” for the purpose of holding individual stocks, persisting in the outdated practice of holding a substantial amount of policy-holding stocks (pages 65 to 68 of the 97th Securities Report of the company). We believe that TBS needs to understand that the continued holding of policy-holding stocks is now viewed with suspicion by the capital markets and that constant efforts to resolve this issue are required from the management. If in the course of these efforts the decision is made to continue holding certain stocks, the process of this decision should be quantitatively and concretely presented to all TBS stakeholders. In our “Six Suggestions” open letter to our investee companies written last year, we review the history of such cross-shareholdings and the obsoleteness of it in current corporate society.

While we continue to massively support the transformational “Timeless Value” growth strategy of TBS with its core focus to grow the IP value, we strongly urge the TBS Board of Directors to present more aggressive and fundamental reform plans for their balance sheet and to set quantitative targets for ROE, a representative indicator of capital returns for shareholders.

¹ It is assumed that company-related parties and cross-shareholding parties oppose the shareholder proposal
² He was appointed Chairman of the Board of Directors from President and Representative Director in June 2024
³ It is assumed that the company’s related parties and policy holders agree with the reappointment of Mr Sasaki

For relevant posts on the company, please see the documents linked below.
16/Jun/2024 – ISS Recommends Support for Hibiki’s Shareholder Proposals
14/May/2024 – Shareholder proposal for TBS HOLDINGS, INC
20/May/2023 – Engagement Explanation Video about TBS HOLDINGS, INC

Please note that the publication of these materials does not solicit applications for or recommend the sale of certain securities, or provide advice on investment, legal, tax, accounting, etc.