CHICAGO–(BUSINESS WIRE)–RMB Capital (“RMB”), a Chicago-based independent investment advisory firm, is a long-term shareholder of TV Asahi Holdings, Corp. (9409 JP, “TV Asahi”) and owns approximately 1% of the firm’s total outstanding shares. RMB filed a shareholder proposal (Proposal #3) for TV Asahi’s 80th annual general shareholders meeting, scheduled on June 26, 2020 to buy back common stocks of 1.25 million shares, maximum 2 billion yen.
RMB explained the background of its proposal as follows:
(1) RMB’s analysis of TV Asahi
RMB believes TV Asahi, which is one of the Tokyo-based major broadcasting companies for Japan, has strong capabilities in creating competitive entertainment content. The firm focuses not only on the traditional broadcasting business but also internet-based broadcasting, including Abema TV, while hosting physical entertainment events around its Roppongi HQs. RMB recognizes the management of TV Asahi is proactive in improving its corporate governance as well as the shareholder return relative to other broadcasters in Japan. RMB believes TV Asahi has a potential to be an outstanding media conglomerate similar to Disney which provides a variety of content ranging from news and sports events to entertainment, given the firm has Asahi Newspaper as a parent company and Toei Group as an equity-method affiliate.
(2) Overview of issues TV Asahi faces
However, the stock price of TV Asahi has been struggling in recent years and stays far below its equity value. RMB believes the current valuation of TV Asahi does not reflect its intrinsic value at all. RMB believes the firm is undervalued because (a) its ROE has been depressed to as low as 5% for years, (b) the structural shift in the ad market in Japan is accelerating where TV broadcasting is finally giving up its market share to the internet, all while (c) the spread of COVID-19 has added uncertainty in the near-term business environment. RMB believes the management of TV Asahi should decisively address issues both in operations and finance to enhance its corporate value.
(3) RMB’s proposals
The management of TV Asahi publicized a new business plan in May and explained that it will further strengthen its ongoing “360 degree strategy.” While supporting this plan, RMB is adding the proposals below to enhance TV Asahi’s corporate value:
a) Upgrading its business model that relies heavily on free-to-view terrestrial broadcasting operation. Traditional broadcasters, including TV Asahi, need to consider fundamental business model changes including returning their broadcasting radio waves to the government. As discussed above, the terrestrial TV ad market started to shrink recently while required capex, including costs for 4K high-definition broadcasting, is mounting. RMB believes operators should control their investments in the low-margin terrestrial broadcasting business and allocate more capital to the new channels, such as internet and the creation of content.
b) Reorganizing its local network stations. These stations, including Asahi Broadcasting in Osaka, should also control their terrestrial broadcasting capex and spend more capital to enhance their content creation capabilities.
c) Further enhancing synergies with Toei Group. Toei, which operates movies, animation and theme park businesses, is a very important strategic source of entertainment content for TV Asahi. RMB believes the digital-friendly entertainment content Toei creates can be one of the core businesses at TV Asahi.
d) Using the excess capital and rich cash flow effectively to improve capital efficiency. RMB believes TV Asahi should buy back approximately 15% of its outstanding shares held by Toei. Though TV Asahi increased its stake in Toei to make it an equity-method affiliate in December 2019, Toei maintains its cross shareholding in TV Asahi. RMB believes buying back the shares held by Toei is the best use of cash for TV Asahi to improve its capital efficiency.
Pertaining to the above proposals, RMB suggested that TV Asahi’s management should buy back shares from the market, and filed a proposal for the annual general shareholders meeting. By initiating a buyback program, RMB believes the management can deliver a strong message to the market that it is determined to significantly improve TV Asahi’s corporate value going forward. While COVID-19 casts temporary uncertainty in the business environment, RMB believes the timing is favorable for a buyback as the share price of TV Asahi is currently at a historically low level.
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.