Toshiba’s largest investor escalates clash with management
Singapore-based activist fund Effissimo calls for EGM and probe of shareholder voting
Toshiba’s largest investor has significantly escalated its clash with management by calling for an extraordinary general meeting and an independent investigation into allegations that a knife-edge shareholder vote was conducted unfairly.
The move by Effissimo, a secretive Singapore-based activist fund that owns 9.9 per cent of Toshiba, breaks almost three months of stalemate that followed the company’s July 31 annual shareholder meeting.
Despite the steady rise of activism in mainstream Japanese corporate life over the past three years, the threat of the EGM remains powerful and rare. Toshiba now has eight weeks to respond to the request, after which Effissimo can take the matter to court.
Toshiba said it would “carefully review” the request and consider how to deal with it.
In a statement issued along with its demand for the EGM, Effissimo highlighted big concerns surrounding the July shareholder meeting, at which Toshiba’s chief executive, Nobuaki Kurumatani, survived a vote on his reappointment with just 58 per cent support.
Effissimo initially raised these concerns in a letter to the company in September, where it also called for a third-party committee to be established to investigate. That committee has not been formed and, according to people close to the fund, there has yet to be an adequate explanation from Toshiba.
“It remains opaque whether the 181st AGM was conducted in a fair and impartial manner, and this situation has not been rectified,” said Effissimo in its December 17 letter to Toshiba requesting the EGM.
It added that in the name of transparency and the fair and impartial operation of shareholder meetings, it was necessary to “bring to broad daylight the actual state of the 181st AGM through an investigation conducted by independent investigators”. Effissimo offered the names of three senior Japanese corporate lawyers to form the committee.
In September the Financial Times revealed that, ahead of Toshiba’s July AGM, the former head of Japan’s $1.3tn Government Pension Investment Fund (GPIF) held private discussions with Harvard Management Company, which subsequently abstained from voting.
At the same time, Toshiba had engaged Goldman Sachs to defend it against activists, as part of what some investors described as a campaign that deployed “all the dark arts”.
Ahead of its call for an EGM, Effissimo said it had interviewed dozens of other Toshiba shareholders and discovered that some had felt pressured to abstain from exercising their voting rights.
Also in September, another large Toshiba shareholder, 3D, discovered that the votes on about 5m of its shares had not been counted by Sumitomo Mitsui Trust, the shareholder services firm that administered the voting for Toshiba.
In an admission that sent shockwaves across the Tokyo market, Sumitomo Mitsui Trust later said it had probably miscounted votes at the AGMs of more than 1,000 Japanese companies over the years. It remains under investigation by the Financial Services Agency.
Toshiba’s AGM in July followed a series of disagreements between Toshiba and Effissimo, which led to the fund and others leading an investor rebellion against Mr Kurumatani.
Unlike the CEOs of other large Japanese companies, Mr Kurumatani’s position was particularly vulnerable to such a move.
In the wake of the 2017 financial crisis that brought Toshiba to the brink of bankruptcy, the group issued $5.4bn in new equity — a move that was strongly resisted in some quarters of the Japanese government and which abruptly filled the Toshiba shareholder register with an unusually large number of foreign hedge funds and activists.
Gapping down
In reaction to earnings/guidance:
- ABM -3.8%, WOR -2.9%, NAV -0.6%, BE -0.5% (guidance), MLHR -0.4%,
Other news:
- TRIT -17.7% (was informed that a statutory demand for payment from Antanium Resources was filed by a creditor)
- LQDA -6.9% (files for $200 mln mixed securities shelf offering)
- RRD -6.7% (says it's not currently engaged in discussions to sell its printing and packaging business in Asia Pacific)
- ZYNE -5.5% (provides regulatory update on Zygel in Fragile X Syndrome)
- GMDA -4.9% (launches follow-on offering of its ordinary shares; no terms have been disclosed)
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- AUPH -3.1% (to collaborate with Otsuka Pharmaceutical for the development and commercialization of Voclosporin in Europe and Japan)
- UCTT -2% (to acquire Ham-Let)
- LXRX -1% (enters into collaboration with AC Bioscience),
Analyst comments:
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- MGNX +11.2% (receives FDA approval for MARGENZA for HER2-positive breast cancer)
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- ROKU +6.5% (HBO Max to launch on Roku platform on Dec 17),
- ADMA +5.8% (adopts limited duration stockholder rights plan)
- HGEN +4.9% (announces completion of enrollment in Phase 1 Study of ifabotuzumab in glioblastoma multiforme)
- ATEC +4.6% (acquires EOS Imaging for $79.7 mln, plus retirement of debt)
- KVHI +4.5% (announces that ioCurrents has joined the KVH Watch Solution Partner program)
- NRZ +4.2% (increases dividend),
- NVAX +4.1% (signs agreement with New Zealand for 10.7 mln doses of COVID-19 vaccine)
- FREE +3.8% (to acquire all of the issued and outstanding capital stock of WSO Investments)
- PVG +3.6% (reports discovery at the Hanging Glacier Zone)
- SWBI +3.2% (authorizes $50 mln stock repurchase plan)
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- PLNT +1.5% (new COO),
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- MGTX +1.4% (to present clinical update for AAV-hAQP1)
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Analyst comments:
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- WMB +2% (upgraded to Outperform from Neutral at Credit Suisse)
- MSP +1.7% (upgraded to Overweight from Equal Weight at Barclays)
- WMG +1.4% (upgraded to Overweight from Equal-Weight at Morgan Stanley)
- ILMN +1.2% (upgraded to Buy from Neutral at BTIG Research)
- NICE +1% (upgraded to Overweight from Equal-Weight at Morgan Stanley)
- CMA +0.9% (upgraded to Overweight from Equal-Weight at Stephens),
DoorDash, Grubhub, Others Could Face a Pared-Down Menu
Delivery platforms could lose their appeal for restaurants after the coronavirus pandemic ends
Investors bidding up newly public shares of DoorDash DASH -0.53% and its competitors shouldn’t take for granted the historically fragile relationship between food-delivery platforms and the restaurants they serve.
While it is unclear just how sticky eaters’ business will be on delivery apps once the coronavirus pandemic ends, their loyalty could in many cases depend upon whether their favorite restaurants stay around. That is hardly a guarantee.
Delivery platforms have been essential to the survival of many restaurants this year, bringing them business even while their dining rooms have remained closed down. In addition to offering grants and relaxed delivery fees in some cases, the platforms have been working to use the pandemic as an opportunity to prove their long-term value to restaurants, many of which had once scorned their services because of high commissions or questionable business practices.
There is no question delivery players have won over lots of new restaurants for now. This is evidenced by big increases across platforms in partnered restaurants, or those with which platforms have an agreement to offer their goods to consumers. In the first nine months of the year, for example, regulatory filings show Grubhub GRUB 0.24% added approximately 90,000 partnered restaurants, or 37% of the total number it had as of Sept. 30. Uber Technologies UBER -1.00% said in its third-quarter report that Uber Eats grew active partnered restaurants by 70% year over year.
DoorDash similarly seems to have added something like 50,000 merchants in the several months before its initial public offering filing alone. And although its early growth may have been in part fueled by facilitating deliveries without prior consent of restaurants, according to D.A. Davidson analyst Tom White, DoorDash now says partner merchants account for nearly all the platform’s gross order value.
But attrition could be coming. Some of this year’s restaurant growth seems to have come courtesy of local regulators, who have enacted temporary caps in many geographies on commissions that platforms can charge for their services. Some caps, including those in major cities such as New York City and San Francisco, are well known by investors, but the details of each individual regulation are more esoteric. Philadelphia’s ordinance, for example, is particularly tough on delivery platforms, capping delivery fees at 10% of the purchase price of an online order.
Also underappreciated are caps in smaller metro areas and suburbs, which have increasingly popped up. Earlier this month, Berkeley, Calif., for example, lowered its commission cap on delivery fees to 10% from a previous cap of 15%. Before the pandemic, delivery platforms frequently charged restaurants up to 25% or more in total fees.
These caps are set to expire at various times once restaurants reopen and the pandemic has eased. At that point, it is likely that delivery platforms, which haven’t put up consistent profits this year, will hike commissions back up. In urban areas, where discovery and delivery may be less necessary, the additional fees could cause restaurants to rethink the value each platform provides. That could put platforms such as Grubhub and Uber Eats, which have a stronger presence in Tier 1 cities, at greater risk.
DoorDash’s Chief Financial Officer Prabir Adarkar said he believes its platform has demonstrated its worth to merchants amid the pandemic, acting as a lifeline to many of them, and therefore expects them to remain on board even after the pandemic ends.
But once all restrictions on in-person dining are lifted, the balance of power could shift. Big national chains in particular won’t need as much help from online platforms in a more normal world. This matters because, according to Grubhub’s 2020 “Year in Food” report, all of the top 10 trending dishes this year are items commonly ordered from big household chains, such as a spicy chicken sandwich or a chicken burrito bowl.
Is an iced latte 157% more popular on Grubhub this year because the app featured a previously unknown cafe, or simply because fewer people walked by a Starbucks? Investors awaiting the delivery of their own daily caffeine fix need to be asking themselves this very question.
Early premarket gappers
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