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Kirin activist admits 'ambitious' target for crunch investor meeting

Shareholder opposes Japanese brewer's diversification and wants independent directors

Independent Franchise Partners admits that what it is trying to pull off with Kirin "has never happened to a Nikkei 225 company." (Nikkei montage)

TOKYO -- The activist investor mounting a challenge to the management of Japanese drinks group Kirin Holdings has acknowledged it has an "ambitious" task to win enough backing from other shareholders.

But in an interview Hassan Elmasry, the CEO of Independent Franchise Partners (FP), said other investors had "a lot of sympathy" with its demands and said Kirin would receive "a very clear signal" of hostility to some of its strategy at its annual general meeting this month.

"We are highly confident that our message makes sense [and] that it has been graciously received by the other shareholders," Elmasry told the Nikkei Asian Review in Tokyo.

FP wants shareholders to force Kirin to name two independent directors to its board when the company holds its AGM on March 27. FP also wants the Japanese company to focus on its core beer business and offer a 600 billion yen ($5.74 billion) share buyback by selling its health business and nonalcoholic drinks business.

The U.K.-based fund, which owns 2% of Kirin, has been holding meetings with other shareholders in Tokyo.

The activist group says it has been talking with 60% to 70% of Kirin's Japanese institutional shareholders -- who hold a combined stake of about 30% in the beverage group -- and virtually all of the company's foreign investors, who also hold about 30% of Kirin.

To succeed with its proposal at the AGM, FP would first need the attendance of more than half of Kirin's voting shareholders. It would then need backing from more than 50% of those attending.

"I think this has never happened in Japan to a Nikkei 225 company. It's never happened to have a majority. So I think it's really ambitious to hope for 50%," Elmasry said.

"But we are very hopeful that enough shareholders will vote to send a very clear signal."

Elmasry said other investors "have a lot of sympathy for the way we see the problem."

FP has attacked Kirin's strategy of diversifying away from its core beer business, saying the company's share price has suffered because of its acquisition of a biochemical business from Kyowa Hakko Bio and its purchase of a 33% share of Fancl, a health supplement and cosmetics maker.

Kirin CEO Yoshinori Isozaki has defended the strategy, saying the group needs to diversify because beer sales are under pressure due to Japanese consumers' increasing health concerns, an aging population and changing consumption habits among the young.

"We are not sure how much beer [consumption] will drop, especially now with problems such as the coronavirus, and the health science business is something very meaningful. It can contribute enough [to society]," Isozaki said at a news conference this month.

Elmasry says there is "no substance" behind Kirin's diversification strategy. "The opportunity cost from this vision is very expensive," he said.

"The core Kirin business -- Japanese beer, Australian beer, Myanmar, Philippines -- these have been the engines for other companies like Asahi, Heineken, AB InBev [and] Carlsberg to make very good profits steadily for a long time and generate a really outstanding stock, which would make the owners of Kirin very happy," Elmasry added.

Kirin rejected FP's suggestions for independent directors when it announced its latest board last month. FP has proposed Nicholas E Benes, a financial and legal expert, as well as Kanako Kikuchi, who has experience at global pharmaceutical companies.

"The role of the board is to oversee strategy and to hold management accountable for their successes and failures," Elmasry said. "They are supposed to be independent of the management. [And] reviewing strategy is their core function according to the Japanese stewardship code."

Isozaki said this month that FP's candidates had been interviewed by a board advisory committee and "unfortunately [they] did not know about Kirin." He said the company's own suggested directors were "more appropriate for giving advice and monitoring to achieve KV2027," a reference to the company's growth strategy.

One of Kirin's Japanese investors told Nikkei that he agreed with appointing independent directors. "But I do not have the same opinion (as FP) to sell the health business because we have our own strategy to increase Kirin's share price," the investor said.

FP's Elmasry said that even if his group did not achieve its goals at the shareholder meeting "it would be wrong to sell and walk away" as "there is a lot of value here."

FP holds stakes in other Japanese companies, including Nintendo and Japan Tobacco, but "we don't have any plans to do anything else" in terms of possible interventions at those companies, Elmasry said.

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