Japan's Cosmo CEO says Controversial Vote Tactics Justified in Activist Defence

Japan's Cosmo Energy Holdings will exclude its largest shareholder grouping from a vote on a "poison pill" takeover defense as the group's plans may conflict with the interest of general shareholders, its chief executive said on Wednesday.

The vote, to be held in June, would be Japan's second on a bid to exclude an investor from a shareholder vote on whether to adopt a poison pill, with implications for growing shareholder activism and future hostile bids in the country.

   Cosmo - 20% owned by the group led by prominent activist Yoshiaki Murakami - plans to implement a poison pill to dilute the group's stake if the group buys more shares without taking proper steps such as submitting a statement of purpose.

"A vote including the group may not properly reflect the opinion of general shareholders," CEO Shigeru Yamada told Reuters in an interview.

Japan's third-biggest oil refiner follows the footstep of newspaper printing presses manufacturer Tokyo Kikai Seisakusho Ltd. which in 2021 won such a vote to block a takeover attempt by an investment fund.

The supreme court backed the Tokyo Kikai vote, which fuelled concerns among governance experts that the decision could be interpreted as authorizing a board to refuse to count the votes of certain unwelcome shareholders in some circumstances.

The company has said the group's real purpose of the stake purchase is to force a large share buyback for the sake of quick profit and at the expense of longer-term growth, which the group had denied that was the case.

The step comes as the Ministry of Economy Trade and Industry (METI) is hammering out a code of conduct for mergers and acquisitions (M&A) to promote more takeovers and crack down on "unreasonable" defense tactics that have worried investors both globally and at home.

Aya Murakami, a member of the group, criticized the decision, citing the draft guidelines that the use of so-called majority of minority (MoM) vote should be limited.

"The use of MoM vote should not be allowed as we haven't yet decided whether to increase our stake or not," Murakami said in a statement to Reuters.    

Yamada said the group's proposals, including a spin off of Cosmo's renewables unit and consolidation of local refineries, would hurt the common interest of shareholders, but Murakami said the issues are related to the company's management policy and should be decided by a majority vote of all shareholders.

"It appears to be a flagrant violation of the spirit of equal treatment of all shareholders," said analyst Travis Lundy of Quiddity Advisors, who publishes on Smartkarma. "Japan thinks of itself as a nation of strong shareholder rights, except if you somehow oppose management?"

(Reuters - Reporting by Makiko Yamazaki and Yuka Obayashi; Editing by Conor Humphries)

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