February 25, 2020Engagement Agenda“Takeover Defense Measures”(Requesting disclosure on necessity of “Takeover Defense Measures” which may depress theevaluation of the company in the capital market.)

Status of Engagement Dialogues for Companies Whose Takeover Defense Measures
Expired at Their General Meeting of Shareholders in 2019, And
Sending of Letters to Companies Whose Takeover Defense Measures Expire at Their
General Meeting of Shareholders in 2020

Since October 2018, the Institutional Investors Collective Engagement Forum (hereinafter referredto as “IICEF”), together with the investors participating in IICEF’s engagement meeting program(hereinafter referred to as the “Participating Investors”), has held collective engagement, where wesent letters to companies which have introduced countermeasures against large-scale purchase(hereinafter referred to as “Takeover Defense Measures”). In the letters, we explained views of theParticipating Investors on various arguments concerning Takeover Defense Measures, and also
requested such companies to, if they are to submit a proposal to keep the Takeover Defense
Measures at a future general meeting of shareholders, disclose information concerning the necessityof keeping the Takeover Defense Measures in light of risks of depressing the evaluation in the capital
market in their convocation notice and/or timely disclosure material.

1. Overview of this agenda(1) Participating Investors’ Recognition of Takeover Defense Measures
Investors engaged mainly in passive investment like the Participating Investors invest broadly
in Japanese shares, and they have viewpoints of, so to speak, a universal owner of “Japanesestock companies.” They take a position to support an increase in corporate value throughsustainable growth with an approach of super-long term investment, and do not pursue nearterm shareholder returns. Accordingly, they do not support abusive takeover actions by a shortterm investor who sacrifices medium- to long-term corporate value.
While there is a view that the legal system in Japan has not yet been sufficiently established,
the TOB rule prescribed in the Financial Instruments and Exchange Act regulates transactions inwhich control is acquired through circumvention and requires purchase of all shares when two1
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thirds or more of them is acquired, and companies are allowed to request information
concerning the acquirer, securing of time for reviewing the offer and information disclosure. Inaddition, we saw judicial precedents in which emergency invocation of a Takeover Defense
Measure using stock acquisition rights was permitted based on approval by the general meetingof shareholders, etc., and in which directors’ responsibilities were denied where shares weresold to white knights at lower prices than hostile takeover offer prices, among others. There wasalso a case where Takeover Defense Measure was once abolished but a proposal of emergency
invocation was submitted to the general meeting of shareholders.
The number of judicial precedents permitting invocation of Takeover Defense Measures is stillsmall, but the legal system relating to abusive takeover actions has been mostly completed. Of
course, it is difficult to establish a complete legal system, and it is possible to acquire one-thirdor more of shares issued and outstanding through in-market purchases, not through TOB, forthe purpose of controlling management, but that will not be so easy considering a possible stock
price hike. Based on the foregoing, we believe that the risk of abusive takeover has been reduced.
In some cases, Takeover Defense Measures are allegedly introduced in order to prevent
outflows of important confidential technologies to overseas. However, basically, what can beprevented by Takeover Defense Measures is abusive acquisition, while strategic acquisitions
with reasonable purpose by competitors, etc., cannot be blocked. It is unlikely for an acquirer todeclare its takeover action as an abusive acquisition trial. It will not be possible to invoke
Takeover Defense Measures only because the acquirer is a foreigner or a foreign company, either.
If a company intend to block strategic acquisitions by foreign companies that have shown fairpurposes, because of overseas outflow concerns, that should be beyond the scope of Takeover
Defense Measures.
Meanwhile, most importantly, Takeover Defense Measures have the aspect of limiting therights of shareholders.

For example, there is a view that Takeover Defense Measures can beused as “weapons” for negotiating higher acquisition price. But whether the TOB price is low orhigh should be up to the shareholders’ decision, and even if the company considers theproposed TOB price is low and a hostile takeover occurs due to a failure to reach an agreementin the negotiation, the company should just express the reasons and opinions on its view of such
low price. Trying to invoke Takeover Defense Measures insisting that the TOB price is too low
deprives opportunities for shareholders who believe the TOB price is sufficient or high enoughto take profits. Therefore, in our view, the idea that Takeover Defense Measures can be used as“weapons” in price negotiations is very questionable.
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Originally, Takeover Defense Measures have the aspect of weakening the self-discipline of themanagement team, as they limit the shareholders’ rights to bring about changes in management
teams that have not produced satisfactory achievements.

We suspect that there ismisunderstanding among the management teams that they can prevent acquisition proposals
which they do not want to accept, including those with reasonable strategic purposes, byintroducing Takeover Defense Measures. Such misunderstanding should weaken themanagement team’s sense of tension toward entrustment of shareholders and bringcomplacency into management. To put it further, introducing or keeping Takeover Defense
Measures will lead to investors’ concerns of the management’s entrenchment, which will also
lead to their distrust of the management. Thus, some investors may be inclined to put discounts
on governance when evaluating the corporate value of the companies with Takeover Defense
Measures.
In this way, introducing and keeping Takeover Defense Measures can lower the investors’
confidence and may depress the evaluation in the capital market.

Most listed companies aremaking efforts on information disclosure and IR activities and the like in order to build arelationship of trust with investors, and to get proper evaluation of corporate value to form fairstock valuation. However, if a company tries introducing/keeping Takeover Defense Measures,
it is difficult for us, investors, to find convincing reason for the company’s decision ofintroducing/keeping the program, taking such risks of lower investor confidence and poorer
evaluation of corporate value.
From the standpoint of the Participating Investors, if we had to, we might be able to consider
a proper reason for introducing Takeover Defense Measures in the case where the management
team “recognizes that there are management issues/challenges at the time, has already started
implementing management reforms aiming for medium- to long-term growth and wants grace
for the time being as it will still need some more time before it sees the outcomes produced anda fair stock price formed.” In such a case, we would like the management team to clarify themanagement issues recognized by the team, the reform policies and plans, the goals and target
time of achievements, the expected change of corporate value at the time of the achievements.
If the explanations of these points are satisfactory enough, we may possibly regard theintroduction/keeping of such Takeover Defense Measures with limited duration as reasonable.
(2) Request for information disclosure concerning the necessity of Takeover Defense Measures
Companies with Takeover Defense Measures have in-detail explanations of the schemes in3
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their disclosure materials, but unfortunately, their discussions of the necessity of the programs
are not sufficiently satisfactory to investors. As the purposes of the introduction, many of thesecompanies argue that the measures should prevent abusive acquisitions such as damaging
important management resources and hindering long-term business, and that they are effective
in securing information-gathering time for shareholders judgments. However, these reasons are
not convincing from our point of view as investors, considering the risk of lowering theevaluation in the capital market.
If a company plans to propose to keep its Takeover Defense Measures at a future general
meeting of shareholders, we would like the company to disclose information concerning thenecessity of keeping the Measures in light of risks of depressing the evaluation in the capital
market such as the following in their convocation notice and/or timely disclosure material as
supplementary information to the proposal:-How the company understands the current stock price situation and corporate value
evaluation in the capital market;-What the company thinks about the possible investor confidence decline caused by theTakeover Defense Measures; and-What are the specific reasons behind company’s decision of introducing/keeping the plan
which may expose its corporate value to the risk of poorer evaluation.
2. Status of engagement dialogues with companies whose Takeover Defense Measures Expired attheir General Meeting of Shareholders in 2019
We selected 59 companies with market capital of a certain amount or more from among thecompanies whose Takeover Defense Measures were to expire at their general meeting ofshareholders to be held in May or June 2019 and sent letters to them. Among the companies
which received the letters, 37 companies decided to discontinue the Takeover Defense
Measures and 22 companies submitted a proposal to keep the Measures to their general
meeting of shareholders.
Unfortunately, among the 22 companies which submitted the proposal to keep the Measures,
there were no companies which provided sufficiently satisfactory reasons for the Participating
Investors. However, developments of the framework to objectively determine the acceptabilityof the invocation of the Takeover Defense Measures made progress such as increasing thenumber of outside directors and enhancing the board independence.
On the other hand, among the 37 companies which decided to discontinue the Measures,
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multiple companies explained to the Participating Investors that, after deep discussions by theboard of directors, going forward, they decided to reinforce the justification/validity ofmanagement by further increasing support from investors rather than relying on Takeover
Defense Measures.
3. Starting to send letters to companies whose Takeover Defense Measures expire at their general
meeting of shareholders between March and June 2020
We selected 30 companies with market capital of a certain amount or more from among thecompanies whose Takeover Defense Measures were to expire at their general meeting ofshareholders to be held between March and June 2020, and started in February 2020 to send
letters requesting to describe the reasons for keeping the Takeover Defense Measures, if that isthe case, in their convocation notice and/or timely disclosure material, as we did in 2018.
***Contact information
Institutional Investors Collective Engagement Forum
Directors in charge: Yuki Kimura, Naomi Yamazaki and Ryusuke Ohori
Tokyo Entre Salon, Shinmaki-chou Building Annex 1, 3-2-14, Nihonbashi, Chuo-ku,
Tokyo 103-0027 JAPANE-mail: info@iicef.jp

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