Asset Value Investors (AVI), the manager of AVI Japan Opportunity Trust (AJOT) and AVI Global Trust (AGT), has launched a public campaign targeting portfolio holding Rohto Pharmaceutical (TSE: 4527). The campaign urges Rohto to concentrate on its profitable core businesses – namely skincare and eye care – and to step back from continued investment in its loss-making regenerative medicine division. It has also called on Rohto to engage with its shareholders more constructively and to comply with the Tokyo Stock Exchange’s request for management that is conscious of the cost of capital and stock price.
AVI has been engaging with Rohto since first investing in June 2024, calling for a focus on shareholder value and alignment with Tokyo Stock Exchange (TSE) guidance for capital-efficient, price-conscious management. AVI is critical of Rohto’s decision to continue allocating capital to regenerative medicine, as well as recent high-valuation M&A activity and the unexpected issuance of convertible bonds, which AVI believes could be dilutive to shareholders given the company’s depressed share price.
Despite repeated attempts to engage in private dialogue, AVI says it has only managed to meet one board member, with Rohto citing scheduling conflicts. AVI sees this lack of engagement as inconsistent with TSE’s corporate governance expectations and has now taken its campaign public via a new dedicated website: www.AwakeningRohto.com, where it has set out detailed proposals for Rohto.
Joe Bauernfreund, CEO and CIO of AVI, commented: “Rohto remains undervalued relative to peers. We’ve consistently encouraged the board to focus on its strengths and enhance capital efficiency, but with limited success. We now feel a public campaign is necessary to drive change.”
Kazunari Sakai, Head of Research for AVI Japan, added: “Rohto’s core businesses have strong potential, but its ongoing investment in regenerative medicine is undermining shareholder value. We believe management must urgently realign with the TSE’s call for cost of capital-conscious strategy.” AVI hopes the campaign will lead to improved corporate governance, clearer communication, and ultimately a realisation of Rohto’s intrinsic value.
[QD comment MR: As we’ve highlighted in both our research on AJOT and AGT, as well as our news coverage of both trusts, AVI has a strategy of active engagement with the companies in which its funds invest. Usually, these efforts take place behind closed doors with AVI’s proposals often being presented to an investee company’s shareholders as its management’s own ideas. However, while AVI will always try and spare investee company management’s blushes, it will, when necessary, take its campaigns public, where it feels all other options for engagement have been exhausted.
The fact that AVI has gone public will mean that it is struggling to make any progress in engaging with Rohto and feels it has no other choice but to put its proposals in front of other shareholders so that they can consider them as well. AVI’s approach is to come up with detailed proposals for portfolio companies to unlock value for all shareholders so are usually well received and, where AVI goes public with such proposals, this typically brings other external pressure to bare on companies so that it is often successful in its campaigns.
AVI selects Japanese companies whose businesses it likes based on their fundamentals and not just the amount of cash that is sitting on the balance sheet. This means that its investment should be profitable in its own right, although unlocking value via active engagement provides a strong kicker that is not dependent on the state of either the Japanese or global economy. Given the current volatility in the global economy, investors may appreciate the sorts of idiosyncratic returns that AVI’s Japanese strategies offer.]
