Sapporo Has Been Severely Mismanaged

• Sapporo is severely mismanaged, with a lack of capital discipline and deficient comitment to shareholders

  • Lack of Capital Discipline: Sapporo’s ROE and operating profit margin remain at the lowest globally, and all its major M&A transactions in the overseas alcoholic beverage segment have resulted in impairment losses

  • Deficient Commitment to Shareholders: Over the past 19 years, Sapporo has failed to meet nearly all of its sales and operating profit targets and has never achieved the final-year targets of any of its mid-term management plan

• The market has extremely low confidence in Sapporo’s management and capital discipline, based on a recent shareholders survey and sell-side analyst reports and earnings call questions
   

3D’s Engagement Has Driven Improvements at Sapporo

• The improvement in Sapporo’s TSR since 2022 is the result, in large measure, of 3D’s engagement, and is not solely (or even primarily) attributable to Sapporo’s management

  • Until 3D initiated its engagement with Sapporo in April 2022, Sapporo’s TSR had significantly underperformed its competitors

  • Sapporo’s stock price has risen by 225% since 2022; however, the initial surge was triggered by 3D’s intervention, which prompted the establishment of the Group Strategy Review Committee and the divestiture of the real estate business

  • Notably, after Sapporo announced various initiatives on its own, the stock price generally declined

• 3D’s engagement also drove the establishment of the Group Strategy Review Committee and the decision to divest the real estate business

  • Many current board members supported Sapporo’s unusual configuration, making the real estate business the core business and emphasizing net investment in the real estate business, as evidenced by the Nov. 2022 mid-term management plan

  • 3D conducted a shareholder survey, analyzed market participants’ opinions and requested the formation of a special committee, leading Sapporo to establish the Group Strategy Review Committee

  • After reviewing the matter within the Group Strategy Review Committee, Sapporo decided to divest its real estate business, excluding Yebisu Garden Place ("YGP")

  • 3D provided specific proposals exceeding 160 pages on enhancing real estate value, prompting Sapporo to consider the divestiture of YGP as well​
     

We Believe Sapporo Continues to Lack Capital Discipline

• Sapporo has decided to divest its real estate business and is currently executing on this plan

• However, shareholders are rightly skeptical that the plan will be executed well; in particular, there are reasonable concerns that Sapporo and Board will:

  • Fail to maximize the proceeds of the real estate divestiture; and 

  • Fail to optimally allocate such proceeds
     

3D’s Proposal to Maximize the Proceeds from the divestiture of the Real Estate Business

• The optimal approach to maximizing the proceeds from the divesture of the real estate business consists of the following:

  • (1) Set as a key goal the maximization of consideration for the real estate assets

  • (2) Select an appropriate method and execute on a process that maximizes the proceeds

  • (3) Provide transparency to shareholders about the process and secure shareholders’ support

• However, Sapporo has failed to commit to these principles, raising serious concerns about whether the proceeds from the divestiture of the real estate business will be maximized

• In fact, based on publicly reported figures, the estimated transaction price for the divestiture of the real estate business is around ¥400 billion yen, significantly lower than the ¥636 billion valuation assessed by a third-party evaluation agency

• The significant discrepancy in divestiture valuations raises major concerns about deficiencies in the sale process
   

We Believe the Composition of Sapporo’s Audit and Supervisory Committee Perpetuates Flawed Decision-Making

• Sapporo’s Audit and Supervisory Committee, if functioning appropriately, should serve to prevent board decisions that may lead to corporate value deterioration

  • The Audit and Supervisory Committee is responsible for both accounting and business audits and, in addition to legal audits, it also conducts appropriateness audits

  • The committee holds strong authority in overseeing Board decisions and has the right to collect reports, conduct investigations, and express opinions

• However, Sapporo’s Audit and Supervisory Committee has significant deficiencies

  • The committee chairperson is a Sapporo executive who was directly involved in executing an M&A deal that resulted in impairment losses

  • This raises concerns about a lack of necessary independence in key oversight roles

  • The committee members lack expertise in key areas essential for conducting accounting and business audits, including accounting, real estate, business/asset divestiture processes, M&A, and capital allocation policy
     

We Believe Shareholders Should Appoint Mr. Paul Brough as a Director and Member of the Audit and Supervisory Committee

• Mr. Paul Brough possesses the required expertise and independence and, as a director who is a member of the Audit and Supervisory Committee, would enhance oversight functions related to maximizing the proceeds from the divesture of the real estate business and optimally allocating the proceeds from the divestiture

• Additionally, leveraging his unparalleled experience at Toshiba, he would contribute to ensuring transparency for shareholders

  • Expertise: Mr. Paul Brough has extensive knowledge and experience in areas critical to Sapporo’s business audit, including accounting, real estate, business/asset divestiture processes, M&A, and capital allocation policy

  • Independence: Mr. Paul Brough is independent of both 3D and Sapporo

  • Transparency for Shareholders: As the former chairperson of Toshiba’s Strategic Review Committee and a member of its Special Committee, Mr. Paul Brough has successfully ensured transparency regarding complex assessments and transaction executions

• Approving 3D’s shareholder proposal presents no risk

  • 3D’s proposal would add significant independent expertise to the Board without any disruption of Sapporo’s ongoing process, distorting the board's decisions in a certain direction, weakening the negotiating power with buyers of the real estate business, or impairing the ability to respond to future changes in circumstances
     

3D Intends to Vote Against Other Directors

• 3D do not believe that Mr. Toru Miyaishi is an appropriate Chair of the Audit and Supervisory Committee, so 3D opposes the reappointment of Mr. Miyaishi, currently a Chairperson of the Audit and Supervisory Committee, as a director who is a member of the Audit and Supervisory Committee if the proposal is submitted.

  • Mr. Miyaishi is a Sapporo executive and was directly involved in an M&A deal that resulted in impairment losses, raising concerns about his independence

  • He lacks the necessary expertise in accounting and business audits, particularly in accounting, real estate, business/asset divestiture processes, M&A, and capital allocation policy

• 3D opposes the reappointment of Mr. Makio Tanehashi as Outside Director

  • Mr. Tanehashi was appointed as an outside director to support Sapporo’s mid-term management plan, which emphasizes increased investment in the real estate business

  • He is a former Deputy President of Mizuho Bank, Sapporo’s main lender, and is affiliated with Tokyo Tatemono, a company engaged in cross-shareholding with Sapporo, raising concerns about his independence

  • A director who is not genuinely independent from the executive management should not be involved in the divestiture of the real estate business, which accounts for over 70% of Sapporo’s market capitalization. A lack of both independence and expertise makes his role in this process inappropriate