Executive Director, Metrical Inc

Aki Matsumoto

Executive Director

Independent Leading Corporate Governance Research

Metrical Inc

METRICAL INC. is an independent leading Corporate Governance research firm in Japan where Corporate Governance is increasingly recognized as an important element on corporate management in these days. Thus, CG research and solutions would become an essential component of global capital markets and play important to contribute to transparency of the markets and maximize shareholders’ value in Japan. 

METRICAL INC. provides Corporate Governance research and analysis including rating services, and  also offers investment research and IR services with solutions and customized profound research on CG and IR issues.

<ul>
<li>It is an expected option for a parent company to make a profitable subsidiary wholly owned by the parent company, an environment that demands improved ROE.</li>
<li>It is natural that the market would receive a stock offering by a large shareholder with more information than others as the stock price is higher than its fair value.</li>
<li>It's not unrelated to the fact that few shareholder proposals are approved and company proposals are rejected at AGMs, and that most domestic investment managers affiliates of major financial institutions.</li>
</ul>


It is an expected option for a parent company to make a profitable subsidiary wholly owned by the parent company, an environment that demands improved ROE.
It is natural that the market would receive a stock offering by a large shareholder with more information than others as the stock price is higher than its fair value.
It's not unrelated to the fact that few shareholder proposals are approved and company proposals are rejected at AGMs, and that most domestic investment managers affiliates of major financial institutions.


Interesting that the Buy Parent Company + Sell Subsidiary Trade Does Not Work

<ul>
<li>In Japan, many companies have large gap between their stock price and their intrinsic value due to issues related to the use of assets and other resources or cash flow.</li>
<li>Companies want to use the example of "improvement measures" to be released by TSE in January as a template, so we can't expect "management is serious about  tackling this issue."</li>
<li>The fact that ROE has improved modestly over the past decade indicates that management hasn’t made fundamental changes to traditional management strategies to address the challenges faced by individual companies.</li>
</ul>


In Japan, many companies have large gap between their stock price and their intrinsic value due to issues related to the use of assets and other resources or cash flow.
Companies want to use the example of "improvement measures" to be released by TSE in January as a template, so we can't expect "management is serious about  tackling this issue."
The fact that ROE has improved modestly over the past decade indicates that management hasn’t made fundamental changes to traditional management strategies to address the challenges faced by individual companies.


"Requests" Through Overseas Investor Engagement Will Continue to Be More Effective than TSE Requests

<ul>
<li>TSE's request to raise P/B was issued March end, and the number of companies that have disclosed their improvement measures is still low, at only about 30% of all companies.</li>
<li>Companies are likely to use good examples, but because the factors that increase share price vary from company to company, companies must offer their own solutions to their own situations.</li>
<li>Investors don't want to see "P/B improvement plan" that follows the template, but want to see compelling measures that demonstrate cash flow growth, which is based on share price appreciation.</li>
</ul>


TSE's request to raise P/B was issued March end, and the number of companies that have disclosed their improvement measures is still low, at only about 30% of all companies.
Companies are likely to use good examples, but because the factors that increase share price vary from company to company, companies must offer their own solutions to their own situations.
Investors don't want to see "P/B improvement plan" that follows the template, but want to see compelling measures that demonstrate cash flow growth, which is based on share price appreciation.


Investors Do Not Want to See A "P/B Improvement Plan" That Follows a Template

<ul>
<li>Companies with large shareholders' interests of 20% or more account for 779 of 1,784 companies in Metrical Universe. A number of companies are investment targets as TOB  and MBO candidates.</li>
<li>Companies with large shareholder influence may feel distanced from general corporate governance practices, but their interests are aligned with those of minority shareholders in terms of shareholder-oriented management.</li>
<li>For quality markets, it's necessary to reduce the number of companies by increasing TOBs and MBOs, and to do so, managers need to be aware of the cost of listing.</li>
</ul>


Companies with large shareholders' interests of 20% or more account for 779 of 1,784 companies in Metrical Universe. A number of companies are investment targets as TOB  and MBO candidates.
Companies with large shareholder influence may feel distanced from general corporate governance practices, but their interests are aligned with those of minority shareholders in terms of shareholder-oriented management.
For quality markets, it's necessary to reduce the number of companies by increasing TOBs and MBOs, and to do so, managers need to be aware of the cost of listing.


For Increasing TOBs and MBOs, Managers Should Be Aware of Listing Costs and PE Market Should Expand

<ul>
<li>Rather than "management with awareness of stock price," the question is whether management is carrying out its duties toward "the goal of increasing shareholder interests," to put it more accurately.</li>
<li>In determining TOB price, the question is whether independent committee was established, whether that committee actually functioned, and whether the directors performed their duties in the best interests of shareholders.</li>
<li>The real objective of an MBO is to restart the company for a sustainable expansion of corporate value, not to rip off the equity stake of a bothersome activist investor.</li>
</ul>


Rather than "management with awareness of stock price," the question is whether management is carrying out its duties toward "the goal of increasing shareholder interests," to put it more accurately.
In determining TOB price, the question is whether independent committee was established, whether that committee actually functioned, and whether the directors performed their duties in the best interests of shareholders.
The real objective of an MBO is to restart the company for a sustainable expansion of corporate value, not to rip off the equity stake of a bothersome activist investor.


The Objective of an MBO Is Not to Strip Bothersome Activist Investors of Their Equity Interests

Japan

The TOPIX, also known as the Tokyo Stock Price Index, is a capitalization-weighted index of all companies listed on the First Section of the Tokyo Stock Exchange. The index is supplemented by the subindices of the 33 industry sectors. The index calculation excludes temporary issues and preferred stocks, and has a base value of 100 as of January 4, 1968.

TSE Tokyo Price Index TOPIX (TPX INDEX)

Interesting that the Buy Parent Company + Sell Subsidiary Trade Does Not Work

I would like to discuss the issues on the December 6 Nikkei Newspaper article, "Dialogue with the Market Questioned: Sell or Buy?"

Metrical Inc

"Requests" Through Overseas Investor Engagement Will Continue to Be More Effective than TSE Requests

I would like to discuss the issues on the December 4 Nikkei Shimbun article, "P/Bs Push Fund Managers to Break Out of Slump, One after Another.”

Metrical Inc

Investors Do Not Want to See A "P/B Improvement Plan" That Follows a Template

I would like to discuss the issues on the December 3 Nikkei article, "Low P/B Improvement Measures Disclosure Still 30%. This issue will be the...

Metrical Inc

For Increasing TOBs and MBOs, Managers Should Be Aware of Listing Costs and PE Market Should Expand

I would like to discuss the issues on the December 4 Nikkei article, "Investors on the Move, Targeting Founding Family Companies, in Search of Next...

Metrical Inc

The Objective of an MBO Is Not to Strip Bothersome Activist Investors of Their Equity Interests

I would like to discuss the issues on the November 28th Nikkei Shimbun article "Whose Fault is it that TOB Fails? Increasingly Important: "Stock...

Metrical Inc