Hibiki Path Advisors (“we”, “us”, “our”) has requested the Outside Directors of JAPAN PURE CHEMICAL CO., LTD. (the “Company”, “you”), one of our portfolio companies, from our position as the largest shareholder to provide their thoughts on Hibiki’s opinion by May. 30th 2025.
We would like to ask the outside directors, from the standpoint of representing actions based on the protection of shareholders’ interests, about the decision-making process and rationale for their unanimous opposition to our sincere shareholder proposal, as the largest shareholder, through this request.
【Opinion request letter sent to the Company’s outside directors】
Since the birth of the modern corporation with the establishment of the Dutch and British East India Companies in the early 17th century, the joint stock company system, the greatest invention and noble institution in modern human history, has existed for over 400 years, built on the foundation of creating collective value for shareholders.
Today, this innovative system is enshrined in modern corporate law, which strictly defines the rights of shareholders. In that spirit, and as the largest shareholder of the company, we have engaged with President Tomoyuki Kojima and the Board of Directors in a constructive and sincere manner. Nevertheless, the entire Board—including outside directors who are expected to represent actions based on the protection of shareholders’ interests (Tokyo Stock Exchange, “Expected Role of Independent Directors/Auditors“)—has adopted a strongly oppositional stance and clearly shows a unified decision against our shareholder proposals, which is not only disappointing but a fundamentally irrational and hazardous decision that will impair the value of the company.
From the perspective of Hibiki as a long-time supporter of the company, such an emotionally charged attitude created no benefit, not only for shareholders but also for the loyal employees who have committed their lives to this company over the years. We are completely at a loss as to what alternative the Board of Directors could possibly be prioritizing over the maximization of the corporate value, defined as the sum of the present value of future cash flows—something that should lie at the very core of a director’s fiduciary duties and duty of care. Your company’s performance over the past decade—illustrated clearly in the chart below—speaks for itself: earnings and return on capital have deteriorated significantly. In the face of this persistent underperformance, your hostile opposition to proposals that aim at initiating balance sheet reforms and winning long-term shareholder support is unreasonable. Our proposals are firmly rooted in sound financial logic and focus on restoring economic value. To oppose them so vigorously is nothing short of an affront to the principles of capitalism.
Figure 1: Long-term Business Performance and Capital/Asset Efficiency of the Company
Note: The numerator for ROE/ROA is calculated by multiplying operating profit by (1 – tax rate) for each year.
（Source: Created by Hibiki based on Bloomberg, Company Annual Securities Reports, etc.)
Our simple question is: Does this not seriously deviate from the fundamental principles of corporate governance of the joint stock company and a board of directors system, which exists solely to maximize shareholder value? If the current management is willing to reject the rationality and principles of capitalism—principles that have underpinned the advancement of human society—then it must immediately pursue MBO and take the company private in order to fully align the interests of shareholders and management. However, if the company wishes to remain listed on the Prime Market of stock exchange, then it must urgently address the significant inefficiency in its balance sheet—specifically, the non-operating assets (cash and securities) that account for above 80% of total assets—and present a concrete and prompt plan to enhance ROE.
As a company listed on the Prime Market, you must have engaged in IR activities not only with us but also with diverse shareholders and potential investors. Despite this, at the earnings briefing for analysts and institutional investors held on April 28, 2025, President Tomoyuki Kojima and Senior Director Motoki Watanabe showed poor and unsophisticated responses to the questions from numerous analysts regarding volume effects and the breakdown of SG&A expenses, etc. We believe it is very disappointing and unsatisfactory management quality for most institutional investors. The result brought us deep concern about whether your internal managerial accounting and KPI monitoring systems are even functioning effectively.
We think that the executive management team, particularly President Tomoyuki Kojima and Senior Director Motoki Watanabe, should be acutely aware, through the IR activities since the earnings announcement, of the profound skepticism and apprehension many investors hold regarding the credibility of your medium-term management plan and the likelihood of successful M&A execution. Furthermore, should any of the outside directors have not yet viewed the recording of this earnings briefing – specifically, the initial performance overview by President Tomoyuki Kojima, followed by Senior Director Motoki Watanabe, and the subsequent Q&A session – we strongly urge you to watch the recoding so that you should aware the critical mess of the company. We believe sophisticated investors who analyze companies deeply and invest based on the expectation of medium-to-long-term management improvements and a recovery in business performance will never be persuaded by the presentations like those delivered by President Tomoyuki Kojima and Senior Director Motoki Watanabe, characterized by a monotonous reading of a script, zero sense of vision or passion. A mere glance at the trajectory of your stock price since the earnings announcement makes this painfully clear.
In this current medium-term plan, without any clear explanation or even disclosure, the JPY 3 billion operating profit target for FY30, announced just last year, has been effectively abandoned, and the company treats it as if nothing happened. Adding to that, the timeline for the sale of cross-shareholding stocks has been hugely pushed back to FY27 (within Phase 2 of the mid-term plan). This is disrespecting shareholders and cowardly trying to escape criticism, which is not an appropriate attitude for a company listed on the Prime Market. Such actions smack of arbitrariness in your disclosure policy and are, frankly, deeply disingenuous. The Outside Directors of the company, as a guardians of the stockholders’ rights, do you really think that you and the company fulfill the accountability required as a publicly listed company? We must ask you directly: Do you genuinely believe that you and the company’s approach and disclosure stance to the shareholders are appropriate?
Responses from outside directors must arrive no later than May 30 and should be sent by e-mail or in writing to the following address.
（Our attorney’s contact information）
This post does not constitute a solicitation for an offer to acquire or recommend the purchase or sale of specific securities, or advice on investment, legal, tax, accounting, or any other matters. In the event of any discrepancy or conflict between the English and Japanese versions, unless otherwise noted, the meaning of the Japanese language version shall prevail unless otherwise expressly indicated.