Tokyo, May 13 - Steel Partners Japan Strategic Fund (Offshore), L.P. (“SPJSF”) today sent to Ezaki Glico Co., Ltd. (“Glico” or the “Company”) a letter urging the Company to take steps to improve operating performance or explore strategic alternatives, including the possible sale of the Company.
“We believe the Company has tremendous assets, particularly the Pocky and Pretz brands as well as dedicated employees,” Warren Lichtenstein, Managing Partner of SPJSF wrote. “However, we believe that Glico’s management has lost focus and has failed to make any meaningful contribution to grow corporate value or to lead Glico to its full potential.”
In the letter, SPJSF noted:
- Net sales have shown virtually no growth since the fiscal year ended March 31, 2003, while operating profit and operating profit margin have declined.
- For the fiscal year ended March 31, 2008, operating profit declined year over year 44.2% and net income declined year over year 65.9%.
- The Company’s investments in Nissin Food Products, Taisho Pharmaceutical, TBS, Duskin and House Foods resulted in a loss of 3.6 billion yen for the 12 months ended March 31, 2008.
- The Company has never achieved the 8% return on equity minimum needed to receive support from Japan Pension Fund Association for the reelection of directors.
- The Company lags Japanese and international food companies by almost all measures including gross margins, operating income margins and return on equity.
In light of this continued weakness, SPJSF called on Glico to engage a management consulting firm to evaluate its various businesses and offer suggestions to improve its core businesses. SPJSF also urged the Company to engage an investment bank to explore strategic alternatives, including a possible sale of the Company.
SPJSF noted that on several occasions since 2004, it offered suggestions that it believed would improve the Company’s performance, including that the Company reduce the number of facilities to improve operating capacity utilization rates, seek a partner to expand sales of Pocky and Pretz in North America, hire a management consultant to evaluate the Company’s various businesses, and repurchase and cancel a significant portion of the Company’s outstanding shares.
“During this time of continued poor performance, management has insisted that its plans were superior to our suggestions. However, actual performance over the long-term clearly indicates otherwise and we once again suggest that management seriously consider our proposals,” wrote Warren Lichtenstein of SPJSF.
SPJSF has been an investor in Glico since 2004 and, together with its related parties, is the largest shareholder of the Company, holding 21,850,000 shares, or approximately 15.0% of the Company’s outstanding shares.
Full text of SPJSF letter to Glico follows:
| May 13, 2008 |
| |
| Ezaki Glico Co., Ltd. |
| 4-6-5 Utajima |
| Nishiyodogakwa-ku, Osaka |
| Osaka, 555-8502 Japan |
| Attention: Katsuhisa Ezaki |
| |
| Steel Partners Japan Strategic Fund (Offshore), L.P. |
| P.O. Box 2681 GT, Century Yard, 4th Floor |
| Cricket Square, Hutchins Drive |
| George Town, Grand Cayman |
| Cayman Islands, British West Indies |
| |
| Dear Mr. Ezaki: |
| |
| As you know, Steel Partners Japan Strategic Fund (Offshore), L.P. ("Steel Partners"), together with our related parties, currently owns approximately 15.0% of the outstanding shares of Ezaki Glico Co., Ltd. ("Glico" or the "Company"). We have owned shares of Glico since February 2004, in line with our philosophy of being long-term, patient shareholders. During that time, we have met with your management team on several occasions to discuss the Company and in February 2008, we even provided suggestions that we believe could help improve Glico's corporate value. |
| |
|
Unfortunately, during our time as a shareholder, Glico's management has done a poor job running the company. Net sales have shown virtually no growth since Fiscal Year Ending (FYE) March 31, 2003, while operating profit and operating profit margin are lower today than in FYE 3/2003. Furthermore, the Company has never come close to achieving an 8% return on equity ("ROE"), which is the minimum threshold needed to receive support from the Japan Pension Fund Association ("PFA") for the reelection of directors. As you can see in the table below, FYE 3/2008 was yet another year in a continued long-term negative trend.
|
(¥ in billions, except per share data) |
|
|
|
FYE March 31, Actual |
CAGR |
|
|
|
FYE 3/'03 |
|
FYE 3/'04 |
|
FYE 3/'05 |
|
FYE 3/'06 |
|
FYE 3/'07 |
|
FYE 3/'08 |
|
'03-'08 |
|
|
|
|
Net Sales |
|
268.7 |
|
|
264.9 |
|
|
261.5 |
|
|
261.0 |
|
|
269.8 |
|
|
278.7 |
|
|
0.7 |
% |
|
(-) Cost of Sales |
|
-153.3 |
|
|
-149.3 |
|
|
-148.7 |
|
|
-151.8 |
|
|
-156.9 |
|
|
-165.2 |
|
|
|
|
|
Gross Profit |
|
115.5 |
|
|
115.6 |
|
|
112.8 |
|
|
109.2 |
|
|
112.9 |
|
|
113.5 |
|
|
|
|
|
|
|
|
(-) SGA |
|
-108.0 |
|
|
-109.4 |
|
|
-107.2 |
|
|
-102.2 |
|
|
-105.2 |
|
|
-109.2 |
|
|
|
|
|
Operating Profit |
|
7.5 |
|
|
6.3 |
|
|
5.6 |
|
|
7.0 |
|
|
7.7 |
|
|
4.3 |
|
|
-10.6 |
% |
|
|
|
|
(+) Depreciation/
Amortization |
|
11.2 |
|
|
10.5 |
|
|
10.5 |
|
|
10.1 |
|
|
9.7 |
|
|
10.2 |
|
|
|
|
|
EBITDA |
|
18.7 |
|
|
16.8 |
|
|
16.1 |
|
|
17.1 |
|
|
17.4 |
|
|
14.5 |
|
|
-5.0 |
% |
|
|
|
|
Net income |
|
2.4 |
|
|
2.5 |
|
|
3.4 |
|
|
4.9 |
|
|
4.1 |
|
|
1.4 |
|
|
|
|
|
EPS |
|
17.3 |
|
|
18.2 |
|
|
26.0 |
|
|
37.2 |
|
|
31.9 |
|
|
10.9 |
|
|
-8.8 |
% |
|
|
|
|
(+) NOPAT |
|
4.5 |
|
|
3.8 |
|
|
3.3 |
|
|
4.2 |
|
|
4.6 |
|
|
2.6 |
|
|
|
|
|
(+) Depreciation/
Amortization |
|
11.2 |
|
|
10.5 |
|