Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Thematic (Sector/Industry)

After the close on Tuesday April 28, 2015, Toyota <a href="http://www.toyota-global.com/investors/stock_information_ratings/share_2015/pdf/commonstock_20150428_01.pdf" target="_blank">announced</a>&nbsp;the board had resolved to submit to shareholders a resolution to partially amend&nbsp;the company's Articles of Incorporation to allow the company to allow issue a new series of shares, which they have called "Model AA Shares". The announcement noted a first tranche of 500 billion yen, and future tranches.&nbsp;The securities will be unlisted, non-transferable, require buying an embedded put from the company itself, and result in a mini&nbsp;"death spiral" impact on the common shares.&nbsp;My first reaction was "Huh?"After reading all the materials a second, third, and fourth time - in both Japanese and English - given my 15+yrs of looking at the microstructure of Japanese markets, special situations, and unusual security issuances, my reaction has evolved to a more considered, and evolved&nbsp;"Huh?"CONCLUSIONS<ul><li>The explanations do not make a great deal of sense.&nbsp;</li><li>The economics do not make a great deal of sense, nor do they match what should be the desired 'long-term investor' commitment.&nbsp;</li><li>If one looks at the best and highest purpose of such a structure, one must conclude it might be meant for a different purpose than Toyota discloses.</li><li>And if one takes a more skeptical view of Japanese issuance practices, this has to be seen as a slightly bearish development.</li><li>If Toyota is issuing this now as a way to gain acceptance of issuing it to a different group of shareholders than it says, that is bad.</li><li>If Toyota is wasting its time and energy for minimal benefit, that is bad.&nbsp;Toyota does not need to save 34bn yen in dividend payments over 5yrs when they start with 6 trillion yen in cash, and will generate another 10 trillion yen plus in cash over the next 5 years.&nbsp;</li></ul>

After the close on Tuesday April 28, 2015, Toyota announced&nbsp;the board had resolved to submit to shareholders a resolution to partially amend&nbsp;the company's Articles of Incorporation to allow the company to allow issue a new series of shares, which they have called "Model AA Shares". The announcement noted a first tranche of 500 billion yen, and future tranches.&nbsp;The securities will be unlisted, non-transferable, require buying an embedded put from the company itself, and result in a mini&nbsp;"death spiral" impact on the common shares.&nbsp;My first reaction was "Huh?"After reading all the materials a second, third, and fourth time - in both Japanese and English - given my 15+yrs of looking at the microstructure of Japanese markets, special situations, and unusual security issuances, my reaction has evolved to a more considered, and evolved&nbsp;"Huh?"CONCLUSIONSThe explanations do not make a great deal of sense.&nbsp;The economics do not make a great deal of sense, nor do they match what should be the desired 'long-term investor' commitment.&nbsp;If one looks at the best and highest purpose of such a structure, one must conclude it might be meant for a different purpose than Toyota discloses.And if one takes a more skeptical view of Japanese issuance practices, this has to be seen as a slightly bearish development.If Toyota is issuing this now as a way to gain acceptance of issuing it to a different group of shareholders than it says, that is bad.If Toyota is wasting its time and energy for minimal benefit, that is bad.&nbsp;Toyota does not need to save 34bn yen in dividend payments over 5yrs when they start with 6 trillion yen in cash, and will generate another 10 trillion yen plus in cash over the next 5 years.&nbsp;

'Model AA' Shares - Good Governance Gone Bad?

Japan

Isetan Mitsukoshi Holdings Ltd. is a holding company established through a merger of Mitsukoshi and Isetan. The group operates department stores nationwide, selling clothing, foods, household goods, cosmetics and general merchandise.

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Isetan Mitsukoshi Holdings Ltd (3099 JP)

'Model AA' Shares - Good Governance Gone Bad?

After the close on Tuesday April 28, 2015, Toyota announced the board had resolved to submit to shareholders a resolution to partially amend the...

Travis Lundy

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