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Thursday, December 2, 2021

Activist funds try to disrupt the transactions of Goldman Sachs, Nippo and Eneos

One of Asia’s most aggressive activist funds has adopted high-profile online activities to disrupt an acquisition involving Japan’s largest energy group Goldman Sachs and an 87-year-old construction company.

Oasis, a Hong Kong-based hedge fund, has launched a website that lists the personal email address and other contact information of the person in charge of business planning at Nippo Corporation, encouraging potential bidders to make an offer for the construction group.

The goal of the fund is a transaction originally proposed by a related company as a sign of progress in Japanese corporate governance. Hundreds of listed companies in the country are subsidiaries of large groups that continue to hold substantial or controlling stakes in entities.

Japanese energy group Eneos holds a 57% stake in construction subsidiary Nippo, which said it is acquiring and delisting. Eneos chose a structure in the transaction that involved Goldman Sachs’ commercial banking division. This decision raised concerns among minority shareholders that they were at a disadvantage.

According to investors who complained directly to Nippo, this structure gave the U.S. investment bank an overwhelming “economic interest” in the construction company.

Oasis stated that Nippo is open to bidding, and that citing Eneos’s approach will not be considered hostile, citing the two companies’ assurances last week.

Nippo declined to comment, saying that once the regulatory review of the transaction with Goldman Sachs is complete, it will clarify its position.

Eneos did not respond to a request for comment. Goldman Sachs declined to comment.

Activist investors have long criticized these structures for being unfair to minority shareholders and vulnerable to poor governance by the parent company and subsidiary boards. Some groups accused of poor corporate behavior, such as the corporate group Hitachi, have responded by acquiring or selling listed subsidiaries.

According to the terms of the offer proposed to create two types of shares, the special purpose company established by Goldman Sachs will hold 49.9% of voting shares and 80.1% of non-voting shares. Oasis described the combined 65% interest as “financial arbitrage” in favor of Goldman Sachs.

Oasis said last month that the transaction “takes advantage of the convenience that large shareholders can force small shareholders to relist at a low price to capture the difference between the price paid and the actual price of the business and assets”.

In addition to Oasis, at least four major minority shareholders stated that the price of 4,000 yen (35 U.S. dollars) per share to Nippo’s minority shareholders significantly underestimated the company’s value, and a reasonable price should exceed 5,600 days per share. Yuan.

Japan Catalyst, a radical fund recently set up by online brokerage firm Monex, also questioned why it only negotiated with Goldman Sachs.

The fund stated in its letter: “In the Japanese market, where counter-proposals are not common, it is expected that counter-proposals will appear after the transaction is announced. From the perspective of protecting the interests of small and medium shareholders, this is inappropriate. Decided.” Nippo’s board of directors was in late September.

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