Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Thematic (Sector/Industry)

There are two sides to every story. The Possible Positive Counterpoint to a negative opinion on Toyota's proposed issuance of so-called "Model AA" shares is twofold.&nbsp;<ol><li>It could be that the intentions are highly honourable, but were in fact communicated badly (or not communicated). Toyota has recently been making efforts to attract individual shareholders. They may have decided they need to make a quantum leap. There would be a positive outcome if that were indeed the intention. Details below.</li><li>If a company issues long-term un-trade-able capital, and buys back trade-able capital, it goes without saying that the people who buy want to buy, and the people who sell want to sell. The company is simply proposing to broker the deal. When the buyers cannot re-sell what they bought for a very long time, this removes potential overhang. &nbsp;This aspect is not negative. It is tough to argue otherwise.</li></ol>&nbsp;

There are two sides to every story. The Possible Positive Counterpoint to a negative opinion on Toyota's proposed issuance of so-called "Model AA" shares is twofold.&nbsp;It could be that the intentions are highly honourable, but were in fact communicated badly (or not communicated). Toyota has recently been making efforts to attract individual shareholders. They may have decided they need to make a quantum leap. There would be a positive outcome if that were indeed the intention. Details below.If a company issues long-term un-trade-able capital, and buys back trade-able capital, it goes without saying that the people who buy want to buy, and the people who sell want to sell. The company is simply proposing to broker the deal. When the buyers cannot re-sell what they bought for a very long time, this removes potential overhang. &nbsp;This aspect is not negative. It is tough to argue otherwise.&nbsp;

'Model AA' Shares - The possible counterpoint

After the close on Tuesday April 28, 2015, Toyota <a href="http://www.toyota-global.com/investors/stock_information_ratings/share_2015/pdf/commonstock_20150428_01.pdf" target="_blank">announced</a>&nbsp;the board had resolved to submit to shareholders a resolution to partially amend&nbsp;the company's Articles of Incorporation to allow the company to allow issue a new series of shares, which they have called "Model AA Shares". The announcement noted a first tranche of 500 billion yen, and future tranches.&nbsp;The securities will be unlisted, non-transferable, require buying an embedded put from the company itself, and result in a mini&nbsp;"death spiral" impact on the common shares.&nbsp;My first reaction was "Huh?"After reading all the materials a second, third, and fourth time - in both Japanese and English - given my 15+yrs of looking at the microstructure of Japanese markets, special situations, and unusual security issuances, my reaction has evolved to a more considered, and evolved&nbsp;"Huh?"CONCLUSIONS<ul><li>The explanations do not make a great deal of sense.&nbsp;</li><li>The economics do not make a great deal of sense, nor do they match what should be the desired 'long-term investor' commitment.&nbsp;</li><li>If one looks at the best and highest purpose of such a structure, one must conclude it might be meant for a different purpose than Toyota discloses.</li><li>And if one takes a more skeptical view of Japanese issuance practices, this has to be seen as a slightly bearish development.</li><li>If Toyota is issuing this now as a way to gain acceptance of issuing it to a different group of shareholders than it says, that is bad.</li><li>If Toyota is wasting its time and energy for minimal benefit, that is bad.&nbsp;Toyota does not need to save 34bn yen in dividend payments over 5yrs when they start with 6 trillion yen in cash, and will generate another 10 trillion yen plus in cash over the next 5 years.&nbsp;</li></ul>

After the close on Tuesday April 28, 2015, Toyota announced&nbsp;the board had resolved to submit to shareholders a resolution to partially amend&nbsp;the company's Articles of Incorporation to allow the company to allow issue a new series of shares, which they have called "Model AA Shares". The announcement noted a first tranche of 500 billion yen, and future tranches.&nbsp;The securities will be unlisted, non-transferable, require buying an embedded put from the company itself, and result in a mini&nbsp;"death spiral" impact on the common shares.&nbsp;My first reaction was "Huh?"After reading all the materials a second, third, and fourth time - in both Japanese and English - given my 15+yrs of looking at the microstructure of Japanese markets, special situations, and unusual security issuances, my reaction has evolved to a more considered, and evolved&nbsp;"Huh?"CONCLUSIONSThe explanations do not make a great deal of sense.&nbsp;The economics do not make a great deal of sense, nor do they match what should be the desired 'long-term investor' commitment.&nbsp;If one looks at the best and highest purpose of such a structure, one must conclude it might be meant for a different purpose than Toyota discloses.And if one takes a more skeptical view of Japanese issuance practices, this has to be seen as a slightly bearish development.If Toyota is issuing this now as a way to gain acceptance of issuing it to a different group of shareholders than it says, that is bad.If Toyota is wasting its time and energy for minimal benefit, that is bad.&nbsp;Toyota does not need to save 34bn yen in dividend payments over 5yrs when they start with 6 trillion yen in cash, and will generate another 10 trillion yen plus in cash over the next 5 years.&nbsp;

'Model AA' Shares - Good Governance Gone Bad?

Japan

McDonald's Holdings Company (Japan), Ltd. operates a hamburger fast food restaurant chain throughout Japan.  The Company operates its own stores and franchise stores.

Skylark Co. Ltd. mainly operates a family restaurant chain across Japan.  The Company offers Japanese-style, Western-style, and Asia-style foods for a wide variety of targeted customer segments.  Skylark also sells food and provides delivery servies.

RESORTTRUST, INC. plans, develops, markets, and operates timeshare resort hotels under the "XIV" and "SUN MEMBERS" brand name.  The Company's resort facilities are located in the suburb of major Japanese cities.  Resorttrust operates golf courses.

ROUND ONE Corporation operates bowling alleys and video game arcades.  The Company operates primarily in the Osaka area.

TORIDOLL Holdings Corporation operates a variety of restaurants such as skewered grill chicken, Japanese noodle, ramen noodle, Japanese-style pancake, and pasta restaurants.  The Company operates its business at food courts in shopping centers, stations, highway rest areas, and suburbs.

create restaurants holdings inc. operates direct-run Western, Chinese, and Japanese restaurants.  The Company also operates fast food restaurants.

create restaurants holdings inc. (3387 JP)

SAIZERIYA CO., LTD. operates an Italian restaurant chain based in the Tokyo metropolitan area.  The Company's menu includes pizza, pasta, seafood, and meat entrees.

KYORITSU MAINTENANCE CO., LTD operates student dormitories and dormitories for young businessmen throughout Japan.  The Company builds condominiums and dormitories.

Food & Life Companies Limited operates sushi restaurant chains. The Company operates kaiten sushi stores and restaurants, sushi takeout, sushi bars with snacks, and more. Food & Life Companies serves customers worldwide.

FUJI KYUKO CO., LTD. provides passenger rail and bus transportation and taxi services in Shizuoka, Yamanashi, and Kanagawa prefectures.  The Company leases and sells real estate, operates department store, and offers construction works. Fuji Kyuko also operates amusement parks, hotels, golf course, skiing ground, restaurants, and other leisure-related businesses.

Genting Singapore Limited, through its subsidiaries, develops resort properties as well as operates casinos. The Company has casinos and integrated resorts in different parts of the world, including Australia, the Americas, Malaysia, the Philippines and the United Kingdom.

MGM China Holdings Ltd. owns a luxury resort, hotel, and casino located in Macau. The Company is also exploring other casino gaming development opportunities in Macau.

Wynn Macau, Limited owns and operates Wynn Macau, a destination casino resort currently featuring hotel rooms and suites, a casino, casual and fine dining restaurants, retail space and leisure amenities.

Jubilant Foodworks Ltd. owns and operates fast food chains. The Company offers donuts, baked goods, coffee, bagels, muffin, fruit milkshakes, smoothies, tea, sandwiches, pizza, and beverages. Jubilant Foodworks serves its products to customers throughout India.

Jollibee Foods Corporation owns, franchises and manages a network of fast food restaurants under the trade name Jollibee. The Company was incorporated in 1978.

Minor International PCL is a global company focused on three primary businesses including restaurants, hotels and lifestyle brands distribution.

Norwegian Cruise Line Holdings Ltd. operates a fleet of passenger cruise ships. The Company offers an array of cruise itineraries as well as theme cruises, while markets its services through various distribution channels including retail and travel agents, consumer direct, international sales, as well as incentive sales. Norwegian Cruise extends its services worldwide.

Planet Fitness, Inc. owns and operates a chain of fitness clubs. The Company offers offers personal fitness training programs for its members. Planet Fitness serves customers in the United States.

Caesars Entertainment, Inc. owns and operates as a chain of resorts. The Company offers casino, poker, roulette, and other gaming facilities, as well as provides food and beverages services. Caesars Entertainment serves customers in the United States.

Choice Hotels International, Inc. franchises hotel properties.  The Company franchises hotels throughout the United States, Puerto Rico, and the District of Columbia, as well as other countries.  Choice Hotels' properties operate under the Comfort, Quality, Clarion, Sleep, Rodeway, Econo Lodge, and MainStay brand names.

ZENSHO Holdings CO., LTD. operates a fast food chain specialized in GYUDON which serves bowls of rice topped with seasoned beef based in Kanto.      The Company operates also diversifying into other types of food chains such as "Coco's" and "Big Boy" in Japan.

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Zensho Holdings (7550 JP)

'Model AA' Shares - The possible counterpoint

There are two sides to every story. The Possible Positive Counterpoint to a negative opinion on Toyota's proposed issuance of so-called "Model AA"...

Travis Lundy

'Model AA' Shares - Good Governance Gone Bad?

After the close on Tuesday April 28, 2015, Toyota announced the board had resolved to submit to shareholders a resolution to partially amend the...

Travis Lundy

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