Denso corporation (“the Company”) hereby provides notice that it resolved to conduct a tender offer for the repurchase of its own shares at a meeting of the Board of Directors on April 28, 2017, as outlined below, using the acquisition method specified under Article 156, Paragraph 1 of the Companies Act (No.86 of 2005, including its amendments in the later eras), as applied pursuant to the provisions of Article 165, Paragraph 3 of the same Act, and the provisions of the Company’s Articles of Incorporation.
1. Purpose of tender offer
The Company will continue to raise dividends payment sustainably with taking into accounts its consolidated results, consolidated dividend payout ratio, and dividend amount. Therefore, the Company makes efforts to develop management bases for adapting to environmental changes flexibly and improve consolidated results. The Company’s Articles of Incorporation prescribe that the Company can pay dividend by resolving not only at a shareholders meeting but also at a meeting of the Board of Directors, under the provision of Article 459 of the Companies Act, and the Company appropriates its internal reserve for capital investment, research and development expenses, and repurchase of own shares for shareholders returns.
The Company’s Articles of Incorporation also prescribe that the Company can repurchase its own shares by resolving at a meeting of the Board of Directors, under the provision of Article 165, Paragraph 2 of the Companies Act, so that the Company can promote shareholders returns, enhance capital efficiency, and execute capital policies for adapting to environmental changes more flexibly. In 2016 fiscal year, the Company acquired 6,952,600 of its own common shares by discretionary trading via securities company at the period from August 4, 2016 to September 9, and also from 2016, October 3, 2016 to November 30, 2016 in accordance with the resolution by the Board of Directors meeting held on July 29, 2016. The Company also canceled 90,000,000 of its own shares in August 25, 2016, within 91,247,010 of all own shares the Company possessed as of the day of board meeting.
The Company considered various options regarding the specific method for returns to shareholders based on its capital policies described above. At the end of December 2016, from the view point of being able to acquire considerable number of its own shares in relatively short terms without losing capital efficiency if the Company repurchase its own shares from a large shareholder, the Company started to examine repurchasing its own shares from Toyota Motor Corporation (“Toyota Corporation”), who is the largest shareholder of the Company, which holds 194,948,856 of the Company’s common shares as of March 31, 2017, and its shareholding represents 24.55% (rounded to two decimal places; the same applies hereafter in calculating the percentage of the total number of issued shares.) of all the Company’s issued shares, 794,068,713.
At the beginning of March 2017, the Company concluded that the method of a tender offer would ensure an opportunity for shareholders to tender their shares while watching the trend in the market price during the prescribed offer period (hereinafter referred to as the “tender offer period”), was the most suitable from the viewpoint of both the equitable treatment of shareholders and the transparency of the transactions. When deciding on the purchase price for the tender offer (referred to as the “tender offer price” hereafter), the Company also concluded that it would be desirable to conduct a tender offer at a price representing a certain discount to the market price. The tender offer price is based on the market price, with a focus on ensuring the precision and objectivity of the criteria used to determine the tender offer price and with a view towards setting a tender offer price that is below the market price in order to stem the outflow of assets from the Company, to the extent possible, from the perspective of respecting the interests of shareholders who will continue to hold the Company’s common shares. Thus, the Company decided to communicate with Toyota Corporation regarding the implementation of the tender offer, in which the tender offer price represented a discount of around 10% versus the closing price of the Company’s common shares on the First Section of the Tokyo Stock Exchange on the business day.
In early March 2017, the Company asked Toyota Corporation if they would apply for tender offer based on the conditions above. As a result, at the end of March 2017, the Company received an answer from Toyota Corporation that they would apply 6,000,000 of the Company’s common shares (0.76% of total number of issued shares), which was a part of 194,948,856 shares (24.55% of total number of issued shares) which Toyota Corporation holds.
After examining and determining the above issues, the Company resolved to conduct the tender offer for repurchasing its own shares, using the acquisition method specified under Article 156, Paragraph 1 of the Companies Act, as applied pursuant to the provisions of Article 165, Paragraph 3 of the same Act, and the provisions of the Company’s Articles of Incorporation, and set a tender offer price of 4,321 yen (rounded to the nearest yen; the same applies hereafter in calculating the tender offer price.) by applying a discount of 10.00% to the 4,801 yen (rounded to the nearest yen; the same applies hereafter in calculating the simple average of closing price.), which is the simple average of closing prices for the Company’s common shares on the First Section of the Tokyo Stock Exchange over the one-month period ending April 27, 2016, the business day before the meeting of the Board of Directors held on April 28, 2017. Also, in order to provide an opportunity for other shareholders exclude Toyota Corporation to tender their shares, the Company set a maximum limit of 6,600,000 (0.83% of the total number of issued shares) on the number of shares the Company intends to purchase.
Moritaka Yoshida, an outside auditor of the Company concurrently serving as a senior managing officer of Toyota Corporation, did not take part in the examination and resolution by the Board of Directors regarding the tender offer on April 28, 2017 and was not involved in discussions and negotiations with Toyota Corporation from the standpoint of the Company, from the perspective of avoiding arbitrariness in the process of the Company’s decision-making when examining and determining the tender offer.
Regarding a source of funds, the Company plans to appropriate initial resources for repurchasing own shares. The Company holds 793,550 million yen as a short-term liquidity (cash and cash equivalents) on a consolidated basis as of March 31, 2017, which is enough to keep high liquidity, and a specific sum of cash-flow by business enterprise is expected to be accumulated additionally. Therefore, the Company considers it is able to keep financial soundness and safety even after tender offer.
Furthermore, the Company received an explanation from Toyota Corporation that it is Toyota Corporation’s policy at present, in principle, to tender 6,000,000 of the Company’s shares (0.76% of total number of issued shares) and hold 188,948,856 of the Company’s common shares (23.80% of the total shares issued) after the tender offer as well, after it is resolved to conduct a tender offer for the repurchase of its own shares at a meeting of the Board of Directors on April 28, 2017. The Company has no plans for the disposition regards to the portion of Company shares acquired as a result of the tender offer at present.
