{"id":5090,"date":"2025-10-01T07:20:34","date_gmt":"2025-09-30T23:20:34","guid":{"rendered":"https:\/\/www.hibiki-path-advisors.com\/?p=5090"},"modified":"2025-10-01T16:31:01","modified_gmt":"2025-10-01T08:31:01","slug":"post-5090","status":"publish","type":"post","link":"https:\/\/www.hibiki-path-advisors.com\/en\/engagement\/post-5090\/","title":{"rendered":"1\/Oct\/2025 \u2013\u202fStatement on the MBO of\u00a0Mandom\u00a0Corporation\u00a0"},"content":{"rendered":"

On Friday, September 26,\u00a0<\/span>the tender offer period for\u00a0<\/span>Mandom<\/span>\u00a0Corporation\u2019s MBO officially began.<\/span>\u00a0<\/span><\/p>\n

First and foremost,\u00a0<\/span>we appreciate\u00a0<\/span>the Board of Directors and the Special Committee of\u00a0Mandom\u00a0<\/span>for providing detailed responses to our four questions regarding concerns that the proposed MBO price may be too low, as outlined in the recent<\/span>\u00a0<\/span>\u201cFAQ about \u201cNotice regarding Expression of Opinion in favor of Planned Implementation of MBO and Recommendation to Tender Shares\u201d<\/span><\/a>.<\/span>\u00a0<\/span>That said, as shareholders, we must note that your responses still leave two\u00a0important issues\u00a0unresolved. In both cases, the figures and methodologies provided fall short of the clarity and level of detail that investors are entitled to expect.<\/span>\u00a0\u00a0<\/span>\u00a0<\/span><\/p>\n

The first point relates to the Free Cash Flow (\u201cFCF\u201d) figures used by both financial advisors, Daiwa Securities (\u201cDaiwa\u201d) and Plutus Consulting (\u201cPlutus\u201d), in their DCF valuations. To help all shareholders understand the situation, we have summarized how the DCF valuation ranges from both advisors compare to the currently proposed TOB price in Figure 1 below.<\/span>\u00a0<\/span>\u00a0<\/span><\/p>\n

Figure\u00a01:\u00a0Price\u00a0suggested by both financial\u00a0advisors using\u00a0DCF valuation method\u00a0<\/span><\/p>\n

\"\"<\/span><\/p>\n

\uff08Source\uff1a<\/span>Notice\u00a0<\/span>regarding\u00a0Expression of Opinion in favor of Planned Implementation of MBO and<\/span>\u00a0<\/span>Recommendation to Tender Shares\u00a0<\/span>\uff09<\/span>\u00a0<\/span><\/p>\n

In our prior communication, we specifically raised the following question\u00a0regarding\u00a0the significant difference\u00a0between\u00a0the two\u00a0FCF\u00a0calculations:<\/span>\u00a0<\/span><\/p>\n

\u201c<\/span>Daiwa\u2019s FCF estimates for FY3\/26 to FY3\/28 in total are JPY 7.8 bn lower than Plutus\u2019s, with the variance in the first year of FY3\/26 (a nine-month period) alone amounting to JPY 6.0 bn<\/i><\/span>.<\/span>\u00a0(redacted)\u00a0We therefore inquire how these substantial differences in FCF assumptions were reconciled and justified within the Special Committee, and, during the subsequent Board deliberations leading to its resolution of support, whether the magnitude and sources of these discrepancies in underlying assumptions were questioned. If such concerns were raised, we further\u00a0request\u00a0that you\u00a0disclose\u00a0to shareholders the explanations provided by the advisors and the Board secretariat in response.\u201d<\/span><\/i>\u00a0<\/span>\u00a0<\/span><\/p>\n

In response, the explanation provided was that, assuming the turnover period remains roughly in line with historical levels, the differences in how working capital was calculated\u2014Plutus at the consolidated group level, and Daiwa broken down by Japan, Indonesia, Malaysia, and Other\u2014along with other methodological assumptions, caused the FCF estimates to diverge. Specifically, it was noted that:<\/span>\u00a0<\/span>\u00a0<\/span><\/p>\n

\u201c<\/span><\/i>\u00a0<\/span>In Daiwa<\/span><\/i>\u00a0<\/span><\/i>Securities\u2019 calculation, the Indonesian business\u2019s revenues are expected to grow substantially in the fiscal year ending March 2026 compared with other periods, and it therefore assumes a large increase in working capital items such as accounts receivable and inventories with the revenue growth. As a result, the calculation shows a large decrease in FCF in the\u00a0initial\u00a0fiscal year (the nine-month period ending March 2026).<\/span><\/i>\u201d<\/span><\/i>\u00a0<\/span><\/i>\u00a0<\/span><\/p>\n

At first glance, this\u00a0explanation may appear reasonable. However,\u00a0<\/span>we have some concerns about the claim that the main driver of the JPY 6.0 bn difference in FCF between the two FAs can be attributed\u00a0almost entirely\u00a0to increased working capital in the Indonesia business this fiscal yea<\/span>r.\u00a0<\/span>\u00a0<\/span><\/p>\n

As shown in Figure 2 below,\u00a0<\/span>Mandom<\/span>\u00a0Corporation\u2019s projected sales for the Indonesia business stand at JPY 17.2 bn. This\u00a0represents\u00a0an increase of JPY 3.8 bn from the previous fiscal year, with the 9-month increase being roughly JPY 2.5 bn. Given that working capital is projected to rise by JPY 6.0 bn\u2014more than double the sales increase\u2014there seems to be a significant gap between the assumptions used for\u00a0<\/span>Mandom\u2019s<\/span>\u00a0consolidated\u00a0Cash Conversion Cycle (CCC) and those applied specifically to the Indonesia business.<\/span>\u00a0<\/span><\/p>\n

Figure\uff12\uff1aMandom\u00a0Corporation\u00a0FY\u00a03\/26\u00a0Performance Outlook<\/span> \"\"<\/span><\/p>\n

\uff08Source: Annual Report FY 3\/25\u00a0p. 34\uff09<\/p>\n

However,\u00a0<\/span>it should be noted that<\/span>\u00a0the average\u00a0<\/span>CCC<\/span>\u00a0over the past three years for\u00a0Mandom\u00a0on a\u00a0consolidated\u00a0basis and for its Indonesian subsidiary,\u00a0<\/span>PT\u00a0<\/span>m<\/span>andom\u00a0<\/span>i<\/span>ndonesia\u00a0Tbk\u00a0(a locally listed entity),\u00a0<\/span>has\u00a0<\/span>been 164 days<\/span>\u00a0(consolidated)<\/span>\u00a0and 172 days<\/span>\u00a0(Indonesia)<\/span>,<\/span>\u00a0<\/span>according to Bloomberg. <\/span>This\u00a0indicates\u00a0that there is no material difference between the two.<\/span>\u00a0<\/span><\/p>\n

Furthermore,\u00a0<\/span>PT\u00a0<\/span>m<\/span>andom\u00a0<\/span>i<\/span>ndonesia\u00a0Tbk\u00a0has already\u00a0disclosed\u00a0its\u00a0<\/span>2Q result<\/span>s<\/span>,<\/span>\u00a0<\/span>where<\/span>\u00a0CCC\u00a0<\/span>was<\/span>\u00a0162 days (from Bloomberg)<\/span>, which\u00a0<\/span>is in fact shorter than its historical average<\/span>. We therefore believe\u00a0<\/span>no\u00a0<\/span>major<\/span>\u00a0shift in the underlying operational environment.<\/span>\u00a0<\/span><\/p>\n

Given the above, and as noted in\u00a0<\/span>Mandom\u2019s<\/span>\u00a0own response<\/span>, \u201cFor the business projection period,\u00a0Daiwa Securities\u00a0generally set each business segment\u2019s\u00a0working capital turnover period on the basis that it would continue at a level\u00a0consistent with historical\u00a0periods,\u201d<\/span>\u00a0<\/span>we struggle to see how the JPY 6.0 bn gap in FCF could be explained solely by the Indonesia business.\u00a0\u00a0<\/span><\/p>\n

Next, on the reasons given for not using a Comparable Multiple Valuation method, we acknowledge the response provided and summarize it as follows:<\/span>\u00a0<\/span>\u00a0<\/span><\/p>\n