Asset Value Investors (AVI), manager of AVI Japan Opportunity Trust (AJOT) and AVI Global Trust (AGT), has stepped up pressure on one of its portfolio companies, Wacom Corporation (TSE: 6727), calling for sweeping changes to the firm’s governance and strategy. AVI has submitted a series of shareholder proposals ahead of Wacom’s Annual General Meeting in June and has launched a dedicated campaign website at www.DrawWacomsFuture.com.
The proposals are part of a wider effort by AVI to improve long-term corporate value at the Japanese digital pen and tablet manufacturer. Since initiating its investment in August 2021, AVI has engaged Wacom’s senior management in repeated dialogue, including in-person meetings and written communications, in an attempt to address concerns around the company’s underperformance – particularly in its Branded Business segment, which has accumulated losses exceeding ¥10bn since the fourth quarter of its 2021-22 financial year.
AVI, which is Wacom’s largest shareholder, through its holdings within funds such as AJOT and AGT, argues that Wacom has consistently fallen short of its mid-term management goals and has significantly lagged the broader TOPIX index. In response, it has submitted three shareholder proposals:
- The formation of a Transformation Plan Supervisory Committee
- The appointment of an independent director with a background in capital markets
- Amendments to the Articles of Incorporation to bring Wacom’s policy on takeover approaches in line with Japan’s Ministry of Economy, Trade and Industry’s (METI) Guidelines for Corporate Takeovers
AVI says that these changes are designed to instil greater accountability and improve the company’s strategic execution. If a supervisory committee is implemented, AVI has indicated it would back Wacom’s efforts to refocus and reposition the business.
Kazunari Sakai, AVI Japan’s Head of Research, commented: “To improve alignment with investor expectations and shareholder interests, Wacom should go beyond the current Board’s monitoring role by appointing directors with capital market experience, establishing a supervisory committee, and amending the Articles of Incorporation to align with METI’s Guidelines for Corporate Takeovers.”
Sakai added that despite current difficulties in the branded business, AVI remains optimistic. “We are confident that through shortening the product development cycle for entry-level products and strengthening e-commerce channels, Wacom can further reinforce its position as the global leader.”
Wacom’s AGM will take place in June. Investors will be watching closely to see whether AVI’s proposals gain traction.
[QD comment MR: AVI has shown itself to be one of the more active and persistent proponents of governance reform among foreign investors in Japan and often has multiple engagement campaigns concurrently ongoing. Given the sensitive nature of such discussions, these take place behind closed doors and many will never be made public. The fact that AVI has gone public with its campaign for improvements at Wacom suggests that AVI has a good level of conviction in the potential upside for all shareholders if its campaign is successful and that it is currently struggling to make progress in its discussion with Wacom’s management. The decision to put its ideas in front of other shareholders to increase pressure on management is not one that is taken lightly.
The scale of the losses in the branded business segment and the ongoing underperformance versus TOPIX appear to warrant closer scrutiny. AVI’s proposals – particularly the call for a capital markets-experienced director and the adoption of METI-aligned takeover policies – are well within the bounds of what has become standard among governance-focused investors in Japan. Wacom’s response at the AGM will be a key moment, both for the company’s credibility and for AVI’s broader campaign to drive change in the AJOT portfolio.]
