Hibiki Path Advisors (“we”, “us”, “our”) has submitted a shareholder proposal to JAPAN PURE CHEMICAL CO., LTD. (the “Company” “JPC”), one of our portfolio companies, from our position as the largest shareholder, in order to protect the common interests of JPC’s shareholders. While the Board of Directors of JPC has expressed its opposition to all of our proposals, Institutional Shareholder Services (ISS), a leading proxy advisory firm, has publicly recommended voting for three out our four proposals—specifically, Items 11, 12, and 13, as outlined below. Concerning Item 10, which ISS recommends voting against, their decision is based on a dilution risk that was calculated by most pessimistically assumed formula, and we believe that ISS opposition is technical (based on magnitude of the potential issuance) and does not constitute fundamental objection our intent to align interest between management and the shareholders.
Please refer to the AGM notice issued by the Company for details of the proposals.
Figure 1: ISS Recommendations on Our Shareholder Proposals
※Prepared by Hibiki based on ISS’s stated rationale. The ratio of cross-shareholdings to net assets is as of FY3/24
（Source: Created by Hibiki）
Key takeaways from ISS’s recommendations are as follows, in our view:
①ISS explicitly pointed to the Company’s “Unusually High” level of cash holdings, as well as the fact that 60.5%¹of its net assets are allocated to cross-shareholdings—significantly exceeding ISS’s 20% criteria—as part of its rationale for supporting our proposals.
②ISS firmly endorsed the strengthening of shareholder rights regarding the distribution of profits and share buybacks, clearly stating that such measures are beneficial to shareholders.
③ISS underscored the urgent need for enhanced shareholder returns, citing the Company’s chronically low capital efficiency and poor market valuation.
Figure 2: The Company’s Excess Assets
（Source: Created by Hibiki）
Regarding Item 10, which ISS recommends opposition to restricted stock grants, the stated reason behind the opposition is “excessive dilution”. However, we understand that it does not undermine the fundamental merit of our proposal. Given that ISS has also recommended opposition to items 8 and 9 based on similar dilution concerns, it is clear that the issue lies not with the intent of the proposal but rather reflects a routine, formulaic judgment based on a most pessimistic assumption for shareholders (i.e. the board keeps issuing maximum shares possible to themselves).
As detailed in the rationale of our shareholder proposal, the dilution for a single fiscal year is limited to approximately 1.87% (based on calculations at the time of submission). Therefore, we consider it conservative to rely on ISS’s assumption of a maximum 15.8% dilution over a 10-year period as the basis for judgment.
Separately from our shareholder proposal, ISS has recommended opposing Item 2 candidate 1, the reappointment of Mr. Tomonori Kojima, the current Representative Director and President. However, as of June 7, we currently hold a different view to ISS, with our final decision to be announced later.
ISS’s opposition to President Kojima is grounded in the Company’s failure in capital allocation. While we strongly agree that capital allocation is a critical issue that management has long failed to address, we believe the principal responsibility lies not with President Kojima, but with Item 2 candidate 3 Director and Honorary Advisor Masao Watanabe who served as the company’s Representative Director for over two decades and continues to exert significant influence on management as a Director. During his tenure, Director and Honorary Advisor Masao Watanabe neglected to improve capital efficiency and to enhance corporate value and, in our view, should be deeply accountable for this longstanding oversight more than anybody else.
Accordingly, we currently maintain our position to support President Tomonori Kojima’s reappointment (Updated on June 12: Finalized Policy is here) and oppose Director and Honorary Advisor Masao Watanabe (Confirmed and irrevocable). Furthermore, should President Kojima be reappointed in the AGM this year, we, as the largest shareholder, strongly demand that he exercise fundamental reforms in capital allocation “within his one-year term,” overwriting the time frame and level mentioned in the already announced medium-term plan.
Lastly, regarding Item 1 Amendment to the Articles of Incorporation for transition to a company with an Audit and Supervisory Committee, and Items 2, 3, and 4 Election of Directors, we recognize that ISS’s recommendations differ from ours in several respects. However, with current JPC, taking in account its sheer small size, management structure and its sub-optimal internal control resource, we do not believe that transitioning to an Audit and Supervisory Committee structure will lead to improved governance. We respectfully urge shareholders to review our campaign statement and reach a careful and independent conclusion.
As our firm’s Representative stated in the June 6 publication, “Legal Consciousness in Japan – Viewing Shareholder Rights Through Two Lenses (only in Japanese)”, it is a hard cold fact that a public company fundamentally cannot choose its shareholders. In most cases, when shareholder proposals arise, the root cause lies with the actions or inactions of management itself, prior to when the shareholder proposals are being raised. We believe this is precisely the situation in which JPC is finding itself today.
If management cannot provide a convincing response to constructive, and well-founded shareholder proposals aimed at improving corporate value, then it should seriously consider taking the company private, where it can focus on its business under the ownership of a close-knit group of like-minded shareholders—rather than remain a listed company while disregarding the voices of those seeking meaningful reform.
We would like to once again respectfully ask all shareholders to exercise prudent and thoughtful judgment in determining what is appropriate for maximizing corporate value of JPC. We firmly believe that the future development of Japanese corporate activities and the capital markets fundamentally relies on the exercise of your voting rights.
(Reference)
4/Jun/2025 – Connecting the developments surrounding TAIYO HOLDINGS with our campaign against JAPAN PURE CHEMICAL CO., LTD.
1/Jun/2025 – Regarding the Public Campaign as the largest Shareholder of JAPAN PURE CHEMICAL CO., LTD.
28/May/2025 ー Publication on DIAMOND online regarding JPC campaign
26/May/2025 ー As the largest shareholder of JAPAN PURE CHEMICAL CO., LTD., requested the Outside Directors to provide their thoughts regarding Hibiki’s opinion
22/May/2025 – Commentary of the shareholder proposal to JAPAN PURE CHEMICAL CO., LTD.
21/May/2025 – Submission of a shareholder proposal to JAPAN PURE CHEMICAL CO., LTD. as its largest shareholder
¹As of FY3/24
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.