Glass Lewis joins ISS to support the two nominated directors of 3D at Fujisoft
TOKYO–(BUSINESS WIRE)–3D Investment Partners Pte. ltd. as investment manager of 3D OPPORTUNITY MASTER FUND (together “3D”, “we” or “our”) announced that Glass, Lewis & Co. (“Glass Lewis”) has joined Institutional Shareholder Services (“ISS”) ) recommending that shareholders of Fuji Soft Incorporated (“Fujisoft” or “the Company”) (9749.T) vote “FOR” the two 3D director nominees – Kanya Hasegawa and Keiji Torii – at the annual general meeting of shareholders of Fujisoft held on March 11, 2022.
Glass Lewis concluded that “shareholders should support the dissident’s campaign to elect the two dissident candidates at this meeting. In coming to this conclusion, Glass Lewis noted that “relatively low profitability and margins is unfortunately a long-standing trend that has gone largely unaddressed,” and that 3D has “outlines a series of potential solutions that we believe should warrant further consideration by the company’s board. Glass Lewis highlighted 3D’s candidate qualifications, noting that “Mr. Hasegawa has extensive experience in capital markets and capital allocation in Japan and Asia through his various roles in investment firms, while Mr. Torii has extensive experience in management or consulting for various public and private Japanese companies.
Glass Lewis also noted:
“…over the longer-term unaffected periods, the company’s TSRs lag significantly behind the median returns of the dissenting peer group and the returns of the sector index.
“…the Company’s EBITDA margin is well below that of its peers… In addition, the Company’s profitability ratios (i.e. return on capital and Company ROE) have consistently underperformed its peers.”
“We believe management’s relatively poor projections for the Company’s margins and profitability might be more palatable… if the Company expected to at least generate outsized revenue growth in the years to come. However, we note that the company is only targeting a 3-year revenue CAGR of 5%, which would simply be in line with the current CAGR in revenue of its peers…there may be evidence to suggest that the board isn’t doing enough to further improve the company’s performance relative to its peers. »
“The company publicly claims that if its properties were treated as production plants, the return on the company’s real estate investments could be calculated to be greater than 30%…the company has not publicly disclosed the specific algorithm that it used to arrive at the above figure because the disclosure surrounding this calculation is decidedly vague…the Company’s claim in this regard offers little, if any, practical use to investors.
“…the addition of a shortlist of shareholder-focused director nominees could serve as a reasonable counterweight to the potentially outsized influence of the Corporation’s long-serving directors, particularly that of Mr. Nozawa.
Glass Lewis is the second proxy advisory firm to recommend in favor of 3D’s proposal to appoint Kanya Hasegawa and Keiji Torii to Fujisoft’s board of directors. In its report last week, ISS concluded that “shareholders are recommended to support dissident candidates Kanya Hasegawa and Keiji Torii. In coming to its determination, ISS noted that “the election of two additional outside directors with experience in finance, accounting and capital allocation would help re-evaluate current and future investment plans and decide on the right course of action.
ISS also highlighted a number of performance and capital allocation issues at Fujisoft:
“Overall, operational performance lags its peers over an extended period. Management’s track record of capital allocation seems questionable. … Management’s ROE target of 9.0% by FY24 seems unambitious compared to a median ROE of 13.5% that peers achieved in the last fiscal period. »
“Over the five-year period to February 17, 2022, … Fuji Soft’s TSR of 192.1% was significantly lower than the median TSR of 257.5% of its peers. Fuji Soft’s TSR performance of 112.3% over the three-year period…also lags behind its peers’ TSR of 133.8%. The company underperformed all selected peers over this shorter period. »
“Fuji Soft’s average operating margin of 6.0% over the past five years is the lowest among its peers. Additionally, margins are low despite the fact that the company owns most of the real estate it uses in its operations. »
“We note that Fuji Soft’s return on investment has lagged any of its peers in any given year over the selected performance period. The company’s chronic underperformance relative to its peers in terms of ROE and ROIC is at least partly due to its suboptimal capital structure.
“Fuji Soft’s total net fixed assets (mainly real estate and land) represent 77% of total fixed assets compared to less than 30% for the median of peers. This high amount of fixed assets producing little or no revenue seems to be a key factor in the company’s relative underperformance compared to its peers in terms of ROE and ROIC.
3D Urges Fujisoft Shareholders to Follow the Recommendations of the Two Leading Independent Proxy Advisory Firms and Support Stronger Independent Board Oversight by Voting “FOR” 3D’s proposal to name its two nominees.
Website link: https://www.compoundfujisoft.com/home-eng
About 3D Investment Partners Pte.
3D Investment Partners Pte. ltd. is an independent Japanese value investment fund manager based in Singapore and founded in 2015. 3D Investment Partners Pte. focuses on partnering with managers who share its investment philosophy of creating medium to long-term value through compound capital growth and a common goal of achieving long-term returns.
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3D Investment Partners Pte. ltd. and its affiliates and related persons (“3DIP”) believe that Fujisoft’s current market price does not reflect its instinctive value. 3DIP has acquired a beneficial and/or economic interest based on its own belief that Fujisoft securities have been undervalued and provides an attractive investment opportunity and may in the future be a beneficial owner and/or have an economic interest in Fujisoft titles. 3DIP intends to review its investments in Fujisoft on an ongoing basis and, depending on various factors including, but not limited to, Fujisoft’s financial condition and strategic direction, the outcome of any discussions with Fujisoft , general market conditions, other investment opportunities available to 3DIP, and the availability of Fujisoft securities at prices that would make the purchase or sale of Fujisoft securities desirable, 3DIP may, from time to time (on the open market or in private transactions), buy, sell, hedge, hedge or otherwise alter the form or substance of any of its investments (including investment in Fujisoft securities) in any degree and in any manner permitted by any applicable law, and expressly disclaims any obligation to notify others of such changes.
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