1. Why aren’t the terms and conditions of the Business Integration revised even though Alpine has increased its shareholders’ equity and cash and deposits since the announcement of the Share Exchange on July 27, 2017?
“The Company conducted the Final Examination based on the most recent financial forecasts of the Companies, based on, among other things, the changes to the financial positions and business conditions of the Companies since the announcement of the Share Exchange on July 27, 2017 (for details, see the Final Examination Press Release dated September 27, 2018).”
Throughout its release, including the table on the final page of the release, Alpine has referenced premiums and multiples based on earnings projections made in April 2017 and stock prices from that date, which are not only not “recent”, but moreover are not the actual results. The truth is that since April 2017:
- Alpine beat its net income forecast from the time of the announcement by 1,066%.
- Alpine has continued to beat its earnings forecasts in every quarter since the announcement.
- Alpine’s JV, Neusoft Reach, has signed a large contract with Honda and announced a JV with Denso – none of which has been included in the valuation.
- Alps is facing more business uncertainty, as forecasts for Apple unit sales are lower than expected.
“As a result, the Company concluded that the Share Exchange Ratio is fair on the grounds that (i) in accordance with the Final Analysis conducted by SMBC Nikko, the Share Exchange Ratio is at an appropriate level because it is within the range analyzed by the comparable company analysis, and (ii) the financial analysis report obtained by the Third-Party Committee from YCG also states that the Share Exchange Ratio exceeds the upper limit of the range analyzed by the DCF Analysis and the Third-Party Committee has submitted, taking into account such financial analysis report and other analysis, a written report (toshinsho) to the effect that it is considered that the Share Exchange is not disadvantageous to the minority shareholders of the Company.”
Alpine cannot credibly claim the Share Exchange Ratio is “fair” because Alpine did not obtain a fairness opinion by SMBC Nikko. In its own September 2018 report, Alpine states: “Please note that in connection with the Final Analysis, the Company has not obtained an opinion (fairness opinion) from SMBC Nikko to the effect that the Share Exchange Ratio is fair from a financial point of view to shareholders of the Company’s common shares, other than the Company’s controlling shareholder and others.”
“On that basis, even on the assumption that the Share Exchange Ratio is fair where the Special Dividends are not paid, the Company concluded that it is appropriate to conduct the Business Integration on even more favorable terms and conditions to its minority shareholders and therefore decided to pay the Special Dividends.”
The Share Exchange Ratio is not fair under any objective analysis – Alpine’s repeating otherwise does not make it true. Moreover, YCG’s analysis is deeply flawed and completely unreliable. (We further demonstrate the significant flaws in YCG’s analysis separately). Adding a paltry Special Dividend of just Y100 per share on top of a deeply discounted offer price cannot be considered “even more favorable terms”.
“As described above, the Company made the decision to maintain the Share Exchange Ratio and pay the Special Dividends, taking into consideration the changes to the financial positions and business conditions of the Companies since the announcement of the Share Exchange on July 27, 2017, and believes that the current terms and conditions are the best in the Business Integration.”
The current terms and conditions are not the best in the Business Integration. If this statement is true, that means the Company has made the decision to take significant value from minority shareholders and transfer that value directly to Alps.