CHICAGO–(BUSINESS WIRE)–RMB Capital (“RMB”), a Chicago-based independent investment advisory firm and a long-term shareholder of Faith Ltd. (4295 JP, “Faith”) that owns approximately 10% of the firm’s total outstanding shares, calls for shareholders’ support for a spin-off IPO of Nippon Columbia at Faith’s emergency general shareholders’ meeting (EGM) scheduled on February 18, 2022.
Corporate value of Faith has been cut in half due to management’s inaction
Faith made Nippon Columbia a wholly owned subsidiary through a stock swap deal in August 2017. At that time, management of Faith promised to the shareholders they would improve the corporate value of Faith and justified the deal as “the best way for shareholders to share the benefit.” However, the corporate value of Faith has nearly been cut in half due to management’s inaction, even though shareholders patiently waited for more than four years.
As a large shareholder, RMB has proposed several plans to improve the corporate value of Faith; (a) cut non-performing new ventures, (b) focus on the music label business including Nippon Columbia, and (c) enhance shareholder returns, through actions such as a share buyback. However, the management has ignored all proposals and in fact, did the exactly the opposite: management kept spending money on loss-making venture businesses at the cost of Nippon Columbia’s cash flow, and did not implement any programs to reward shareholders after share buybacks in 2018 and 2019 that were forced by RMB’s activism engagement.
Spin-off IPO is the best way to realize the value of Nippon Columbia
Due to the mismanagement of Faith, Nippon Columbia, which has a history of more than 100 years and is a very important company not only for shareholders but also the general public of Japan, lost growth opportunities for years. Overseas, music label businesses with growth are valued at much higher multiples. For example, Warner Music, one of the three biggest major labels in the world, is valued at 20 times in EV/EBITDA multiples after being listed in 2020. Universal Music, another global major label, receives 24 times multiples after being spun-off from Vivendi in France in 2021. We estimate Nippon Columbia would be worth at least 2,200 yen per share of Faith stock as a stand-alone company. RMB believes Nippon Columbia’s spin-off IPO is necessary so that Nippon Columbia will receive fair valuation, while avoiding further destruction by Faith’s management.
RMB suggests two options for Faith’s management: Improve corporate value or go private via MBO
(1) RMB proposes to Faith’s management the following actions to improve the corporate value:
- Spin-off IPO of Nippon Columbia
- Terminate unprofitable venture businesses
- Enhance shareholder returns through share buybacks
(2) If management wants to keep its venture business attempts at the expense of Nippon Columbia, RMB believes management should take Faith private via MBO (management buyout) by paying fair value to general shareholders, so that the management assumes 100% of this risk. We cannot accept management’s actions to put the capital of shareholders at risk and destroy corporate value.
Say no to management by supporting RMB’s proposal
Upon choosing TSE Prime Market for its new exchange, management of Faith filed an improvement plan to clear the market capitalization standard. However, the plan is just reiterating baseless ideas management has repeatedly attempted and failed in the past. Further, management expects the timing to clear the standard to be 2026. After failing to deliver a return promised in 2017, RMB wonders how many more years management should be given to continue with this plan. RMB believes the answer should be “no more,” and calls for shareholders’ support at the EGM to say no to the management’s plans and demand immediate actions to restore shareholder value.
Please refer to Faith Activism for RMB’s past press releases.
About RMB Capital
Headquartered in Chicago, RMB Capital is an independent investment advisory firm that serves high-net-worth individuals and families as well as institutional investors. Its businesses include wealth management, family office services, asset management, and retirement plan consulting. Its asset management business specializes in long-term, concentrated, active investing strategies with coverage that spans the market-cap spectrum and the globe. To learn more about RMB, visit https://rmbcapital.com.