RMB Capital Responds to Itochu�s Rebuttal of its Opposition to Current Tender Offer to FamilyMart

CHICAGO–(BUSINESS WIRE)–RMB Capital (�RMB”), a Chicago-based independent investment advisory firm, invests in both Itochu Corporation (8001 JP, “Itochu”), and FamilyMart Co., Ltd. (8028 JP, “FamilyMart”) through multiple strategies it manages. RMB opposes the current tender offer to FamilyMart by Itochu and demands Itochu raise its offer price back to 2,600 yen per share. RMB is responding to the rebuttal of RMB’s proposal that Itochu released on Aug. 13, 2020.

(1) “New Normal” is not a consensus

Itochu asserts that “it is quite difficult to anticipate a rapid recovery in FamilyMart’s business performance” under “the new normal” situation. However, RMB believes it is premature to state that the business environment is permanently altered due to the COVID-19 pandemic. Though it is true that we cannot reject the possibility of the second wave or even the third wave of the COVID pandemic and its adverse impacts on the economy, we note that even the notorious Spanish Flu pandemic, which spread across the world in the early 20^th century, ended in two years. Itochu should present a reasonable basis why it believes “the new normal” will remain beyond the foreseeable future.

(2) The valuation by the Special Committee is conservative enough

The valuation obtained by the Special Committee at FamilyMart does not anticipate “a rapid recovery” in its business, either. For example, the valuation assumes FamilyMart’s EBITDA will not recover to the pre-COVID level of 260bn yen until the fiscal year ending in Feb. 2025, more than 4 years from now. RMB believes the DCF valuation by the Special Committee (mid-point 2,756 yen per share) is conservative enough accounting for potential adverse events under prolonged COVID spread in a foreseeable future.

(3) Itochu’s proposal based on the short-term thus is not credible

Itochu justifies its low valuation by referring to the lagging stock performance of FamilyMart against the Nikkei Index as of July 8, 2020, when it announced the tender offer. RMB believes the fact that Itochu bases its valuation on the stock performance of only a few months reveals it is not valuing FamilyMart from a long-term perspective. In its pre-tender offer negotiation, Itochu had lowered its offer price from original 2,600 yen to 2,000 yen, then raised to 2,200 yen before reaching to the current offer price of 2,300 yen. RMB believes Itochu completely lost its credibility with such an arbitrary negotiation process. Itochu should present more reliable data to justify its offer price, such as its forecast of FamilyMart’s financials, the discount rate, and the terminal value calculation. Itochu has not been transparent to the shareholders of FamilyMart.

(4) Itochu should update its offer price

Itochu admits its offer price of 2,300 yen does not include any synergy effects from fully consolidating FamilyMart. It means the value of FamilyMart for Itochu is more than 2,300. If Itochu expects enough synergies, it should be able to raise its tender offer and still remain accountable to its own shareholders. Further, it will be a huge opportunity loss for Itochu’s own shareholders if Itochu sticks to the current offer price, which FamilyMart cannot accept, and fails to fully consolidate the second largest convenience store chain operator in Japan.

RMB hopes Itochu will thoroughly examine the valuation of FamilyMart and the potential synergies between the two companies, and execute a fair tender offer.

Contacts

Media Contact:

Masakazu Hosomizu

RMB Capital

japan@rmbcap.com