February 6,2008
Steel Partners Japan Calls on Aderans to Seek Strategic Alternatives
TOKYO–(BUSINESS WIRE)–Steel Partners Japan Strategic Fund (Offshore), L.P. (“SPJSF”) today sent to Aderans Holdings Company (the “Company”) a letter explaining its lack of confidence in management and disappointment with the Company’s deteriorating performance. SPJSF urged management to immediately seek strategic alternatives to prevent additional damage to corporate value. The fund stressed that all stakeholders, including employees and pensioners, have already been damaged by mismanagement of the Company.
To further its assertions, SPJSF sent a presentation to the Company highlighting the Company’s poor performance and poor capital allocation over the past five years.
In the letter addressed to Mr. Okamoto, the President and Representative Director of Aderans, Warren Lichtenstein, Managing Partner of SPJSF wrote: “We have tried to assist you and your management team in the past to improve corporate value for all stakeholders. Unfortunately, you rejected all of our proposals and suggestions. We believe the Company is at a critical point and we must confess that we have lost confidence in your management team’s ability to run Aderans effectively.”
SPJSF noted the Company’s continuing decline in operating income and margins, frequent failure to meet its annual budget, repeated downward revision to its operating forecasts and underperformance versus direct competitors. These factors have contributed to a 58.3% decrease in the Company’s share price since January 6, 2006. Additionally, management’s new three year mid-term plan for FYE Feb 2009-2011, released on September 13, 2007, was wholly insufficient in presenting realistic performance targets and providing concrete details on how management intends to enhance corporate value.
“We strongly believe that you should immediately begin to explore strategic alternatives, specifically identifying a buyer who will take over the leadership of the Company from you and incumbent management,” Mr. Lichtenstein stated.
SPJSF also noted that in addition to poor management of Aderans’ core wig business, the management team has incurred significant losses for the Company by persisting to hold non-core assets, leading to a ¥2.8 billion loss on the Nakajo golf course in FYE Feb 2005 and a ¥141 million loss from managing investment securities in FYE Feb 2007.
“These are examples of how the Company’s lack of focus is destroying corporate value. All stakeholders, including employees and pensioners, have been damaged by your mismanagement of our Company,” Mr. Lichtenstein wrote.
SPJSF has been an investor in Aderans since 2004 and is the largest shareholder of the Company, owning approximately 23.7% of the Company’s outstanding shares.
A full copy of SPJSF’s presentation to Aderans can found at WWW.SPJSF.JP.
Full text of SPJSF letter to Aderans follows:
February 8, 2008
Aderans Holdings Co. Ltd.
1-6-3 Shinjuku, Shinjuku-ku, Tokyo, 160-8429, Japan
Attention: Takayoshi Okamoto, President & Representative Director
Steel Partners Japan Strategic Fund (Offshore), L.P.
P.O. Box 2681 GT, Century Yard, 4th Floor
Cricket Square, Hutchins Drive
George Town, Grand Cayman
Cayman Islands, British West Indies
Dear Mr. Okamato,
As you know, Steel Partners Japan Strategic Fund (Offshore), L.P. is the largest shareholder of Aderans Holdings Co. Ltd. (“Aderans” or the Company owning approximately 23.7% of the Company’s outstanding shares. We have been a patient, long-term shareholder since February 2004.
During that time we have seen:
-
Operating income and operating margins substantially decrease; - The Company frequently miss its annual budgets for revenue, operating income and operating margins;
- Downward revisions to forecasts for revenue, operating income and operating margins for FYE Feb 2007 (which the Company did not meet);
- Significant downward revisions to revenue, operating income and operating margins for FYE Feb 2008; and
- Direct competitors strategically and financially outperform the Company.
These factors have contributed to a 58.3% decrease in the Company’s share price since January 6, 2006. We believe the two main issues for Aderans are its lack of focus and its poor execution. Instead of managing and growing Aderans’ core wig business, the Company’s management team and Board of Directors the Board have made strategic errors that resulted in a lack of focus, which has caused the steady deterioration of the Company’s core Japanese wig business.
Additionally, the Company has non-strategic assets, including the Nakajo Golf Course, cash and investments that ultimately serve as a distraction. We note that management incurred a ¥2.8 billion loss on the golf course in FYE Feb 2005 and a ¥141 million loss from managing investment securities in FYE Feb 2007. These are examples of how the Company’s lack of focus is destroying corporate value. All stakeholders, including employees and pensioners, have been damaged by your mismanagement of our Company.
Over the last four years, we have repeatedly met with you and your management team and offered meaningful suggestions on how to increase corporate value, including an SPJSF-sponsored transaction to take the Company private as well as adding a representative from SPJSF to Aderans’ Board. By taking the Company private, we believed that management would be more effective in making the necessary changes to increase the corporate value and ultimately grow the Company’s core business without the burden that comes from being a public company. Unfortunately, we respected your wishes to remain a public company.
You also rejected our suggestion to add SPJSF-identified candidates to the Aderans Board, who were all well respected businessmen with a demonstrated history of creating value for stakeholders. Most recently, Aderans’ current management published a new long-term plan that appears to be overly optimistic and potentially unachievable. Aderans’ current management also failed to provide any details as to how it intends to meet its new forecasts and specifically how the Company intends to turn around the domestic wig business. This causes us grave concern in light of the Company’s history of failing to meet forecasts over the last few years.
Mr. Okamato, we have tried to assist you and your management team in the past to improve corporate value for all stakeholders. Unfortunately, you rejected all of our proposals and suggestions. We believe the Company is at a critical point and we must confess that we have lost confidence in your management team’s ability to run Aderans effectively. We strongly believe that you should immediately begin to explore strategic alternatives, specifically identifying a buyer who will take over the leadership of the Company from you and incumbent management. We believe this is the only way to prevent Aderans from incurring additional damage to corporate value under your leadership. We attached for your review a presentation that illustrates the poor performance and poor capital allocation suffered by Aderans over the past five years.
We are prepared to discuss these matters with you and the Board at your earliest convenience and hope that you find our suggestions constructive.
Very truly yours,
Warren Lichtenstein
Copy to: Thomas J. Niedermeyer, Jr., managing partner
Yusuke Nishi, representative director, Steel Partners Japan K.K.
About SPJSF
Steel Partners Japan Strategic Fund (Offshore), L.P. is a long-term relationship/active value investor that seeks to work with the management of its portfolio companies to increase corporate value for all stakeholders and shareholders.