(Bloomberg) — Shareholders of Japanese drugstore chain operator Tsuruha Holdings Inc. will vote Monday on a proposal which effectively results in its acquisition by supermarket chain Aeon Co., a move that has already been panned by major investors and proxy advisers.
The chorus reflects rising shareholder activism in Japan in recent years as the country’s governance reforms embolden investors. Their disappointment in the planned deal centers around the perceived low premium it would pay to Tsuruha shareholders.
Aeon, the country’s largest supermarket chain operator, last month said it will launch a tender offer to make Tsuruha a consolidated subsidiary at 11,400 yen per share as it tightens its grip on the drugstore market.
The announcement, however, received an immediate rebuke from Orbis Investments, the second largest shareholder with 9.7% stake only after Aeon, which had about 19.5% stake as of Feb. 28, Tsuruha’s last financial year end.
Orbis said the deal is flawed and will allow Aeon to take a controlling stake in Tsuruha on “outrageous terms,” according to the asset manager’s presentation document.
The deal is unfair, Orbis argues, given that Aeon paid 15,500 yen per share when it bought a 13.6% stake from activist fund Oasis Management Co. in February 2024.
Aeon said in a statement that synergies from the planned integration should benefit all stakeholders including Tsuruha shareholders.
Orbis, a value-style but not an activist investor, said it will oppose Tsuruha’s proposal of a share exchange with Welcia Holdings Co., another drugstore already majority-owned by Aeon, to make Welcia a wholly-owned subsidiary of Tsuruha.
The UK asset management firm was joined by Norges Bank in opposing the deal. Norway’s sovereign fund holds 1.5% of Tsuruha’s shares, according to data compiled by Bloomberg.
Two major proxy advisers — Institutional Shareholder Services Inc. and Glass Lewis & Co. — also recommended opposing the proposal for similar reasons, a move that could prompt some Japanese asset managers to side with Orbis. The business integration proposal needs a two-third majority to pass.
“I think we have a good chance of winning at the Tsuruha AGM,” said Brett Moshal, head of the Japan investment team at Orbis Investments. “We have been spending a lot of time talking to Tsuruha shareholders, mainly in Japan. I find that the discussions have been hugely encouraging.”
Tsuruha’s share prices rose above Aeon’s tender offer price, a sign investors see chances Aeon may need to raise its price to win over minority shareholders.
The race is already on to shore up positions ahead of a possible showdown. Aeon has increased its stake to 26.7% while Orbis also increased its holdings to 10.3%, according to respective disclosures.
Akio Hoshi, professor of law at Gakushuin University said Aeon’s TOB price may not satisfy many investors given that Aeon bought its own shares from Nomura in May at a higher price.
If the deal is rejected, “that will bring home to companies the importance of setting a fair price in acquisitions,” he added.
While it is rare for a Japanese company to have management proposed plans rejected at annual general meeting, there have been precedents. In 2007, shareholders of steelmaker Tokyo Kohtetsu Co. blocked a takeover by a unit of Nippon Steel Corp. in a major upset, marking a milestone in Japan’s corporate history.
Daisuke Aiba, analyst at Iwai Cosmo Securities Co., said if the proposal is rejected, Aeon is likely to persist and may get the deal done over the next few months by sweetening their offer.
More stories like this are available on bloomberg.com