“If anything, our proposals are very modest. We deliberately made them uncontroversial,” Fischer said in an interview. “Katakura needs to focus on businesses that make money and are an efficient use of capital. The fact is many of its business lines have barely been profitable or have been loss-making for many years despite large investments.”
While Katakura admits that not all of its business activities are currently performing well, it says it was surprised by the proposals, given ongoing discussions since 2015 to increase profit in the mid-to-long term. After the proposals, Katakura was left with the impression that Oasis wanted it to withdraw from all businesses except the most profitable real estate segment. The firm is adamantly against this.
“In our long history, we’ve experienced how our main source of profit has shifted. Right now our real estate business is doing well, but we’re doubtful that this’ll last forever,” Mizusawa said.
Katakura’s shares surged on Feb. 15 after forecasting a 35 percent jump in 2017 operating profit. The shares have advanced 7.7 percent this year, compared with a 1.5 percent increase for the Topix index. Even so, the stock is trading more than 80 percent below a record set more than 27 years ago.
As part of plans to expand into new businesses, Katakura has started two daycare centres for the elderly, and is producing “value-added” vegetables such as low-potassium lettuce.
Thursday’s shareholder meeting has divided the two major proxy advisory firms that provide vote recommendations to institutional clients across the globe, highlighting the difficulties determining what’s in the best interests of shareholders.
Institutional Shareholder Services Inc. is backing Oasis’s proposals, citing Katakura’s “questionable track record which shows low profitability for all businesses except the real estate business,” according to a report published March 11. “Shareholders cannot reasonably rely on the board to come up with meaningful metrics,” it said.
Glass Lewis & Co. is taking the other side, saying in a March 8 report that the management team and board of directors “typically have more and better information about the company and the response that should be taken -- if any -- to a drop in the company’s ROE.”
Katakura’s top shareholder, trading house Mitsui & Co., declined to comment on Oasis’s proposal. Japan’s $1.3 trillion Government Pension Investment Fund, which is seeking new passive managers to encourage better stewardship, is also among the company’s biggest shareholders.
While activist investors such as Oasis can help draw attention to governance issues, it’s not enough for some market observers.