VALUATION OPINION - BVCJ AND PLUTUS
Oasis has received a valuation opinion from truly independent valuation experts, BVCJ Co. Ltd., which valued PanaHome at ¥1,954 per share. This valuation represents a fair price that is a 94% premium to the current takeover value of ¥1,005 Yen. This independent fairness opinion has been sent to PanaHome. PanaHome have yet to disclose its own SMBC valuation report and has failed to disclose the full “Plutus” valuation report. These reports were purportedly produced for the protection of minority shareholders and, as such, should be publicly disclosed – that is, unless PanaHome has something to hide.
Based on the disclosure provided by PanaHome on February 28, 2017, PanaHome appointed Plutus Consulting to perform a “fairness opinion” purportedly in order to protect minority shareholders. Unsurprisingly for an after-the-fact fairness opinion, the Plutus valuation justifies the original SMBC valuation. PanaHome has provided very little information regarding the opinion; nevertheless, it is clear that the Plutus opinion was not designed to protect the minority shareholders because they accepted all the numbers provided by PanaHome without exception and did not carry out an independent verification -- note the following from the Plutus disclosure:
“Plutus has not guaranteed the their feasibility, nor expressed any opinion on the analyses or forecasts subject to which they were prepared or the assumptions on which they were based.”
“… Plutus has used the materials and information as it was and has not independently verified the accuracy and completeness thereof, and is not obliged to verify them”
Additional disclosure shows flaws in the fairness of the process
We welcome the release of the additional clarifications from PanaHome and the release of a fairness opinion – after the fact – from Plutus Consulting Co. The additional information is helpful to understand the flaws in the process and result. We set out a few of these below, but have privately sent PanaHome a much longer list of flaws:
- The Special Committee set an embarrassingly low bar:
- The Special Committee found that “PanaHome made no obviously irrational judgments” when determining whether the privatization would enhance corporate value. This is unacceptable - shareholders are owed a much higher duty of care than this and to the level of fiduciary responsibility by the directors.
- No “Go Shop” process was undertaken. PanaHome claims that there is no effective alternative to the privatization is apparent but this is obviously irrational and there was no attempt to look at alternatives.
- They are satisfied because they “obtained more advantageous terms that originally offered by Panasonic” -- but this is meaningless.
- PanaHome’s large cash balance was omitted from almost all the valuation metrics:
- The Discounted Cash Flow model employed by SMBC assumed several tens of billions of yen in cash was spent to for future growth but no growth or benefit of the assets from this expenditure were included in the calculation – therefore, only Panasonic benefits from the investment and minority shareholders lose the value of the cash. This is unfair.
- PanaHome tries to claim that not all of the ¥97.5 billion in cash and deposits at end of Q3 are surplus and that ¥40 billion of working capital should be deducted from peak cash. This is obfuscates the truth because Q3 is the cash low point, and deducting the ¥40 billion from peak cash and securities amounts to ¥93 billion, so almost all of the Q3 cash is surplus:
“As the end of December 2016, PanaHome held 97.5 billion yen of cash and deposits…it should not be understood that all such cash and deposits are surplus funds. We need to set aside a significant part of this as working capital and for other purposes…” “As such, the balance of the cash and deposits described in PanaHome’s disclosure materials is at its peak at the end of March, and it can decrease by 40 billion yen due to the payment of said items.”
- The criteria for comparable companies adopted by the SMBC valuation were a) similarity, b) revenue size, and c) stock price information including float turnover not being unnaturally low. However, the comparable companies selected included loss making companies such as Tama Home and a stock with unnaturally low turnover, Mitsui Home.
- PanaHome claims that the privatization is a necessity because “it has been difficult for them to take bold or quick measures” which they will be able to as part of Panasonic – except that PanaHome’s CEO and three other senior executives are former Panasonic employees and they have failed to invest for the future because they deposited their at Panasonic, so why should it be better there?
- We believe that the Special Committee was misled, unqualified, or not independent, and that this resulted in an unfair process and a transaction price well below fair value.
Please join us in protesting this unfair transaction by sending your protests directly to PanaHome or to Oasis. Oasis will submit them for you to PanaHome on a confidential basis. For a sample letter, please click <here>.