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Cosmo Emerges Victorious in Unconventional Vote on ‘Poison Pill’ Amid Activist Pressure

Cosmo Energy Holdings, a major player in Japan’s oil refining industry, achieved a significant milestone on Thursday as its shareholders gave the green light to a poison pill defense strategy. This contentious vote, which excluded select activist shareholders, carries implications for the handling of hostile takeover attempts within Japan’s business landscape.

This marks the second instance of what is known as a “majority-of-minority” vote on a poison pill measure in Japan. These measures aim to limit the voting power of specific shareholders, a tactic that some corporate governance experts argue could emerge as a new deterrent against shareholder activism.

Cosmo, the country’s third-largest oil refiner with a notable 20% ownership by a group led by prominent activist Yoshiaki Murakami, can now deploy a poison pill provision to dilute the activists’ stake if they acquire additional shares without disclosing the purpose behind their acquisition.

During the company’s annual general meeting on Thursday, Cosmo reaffirmed its stance that excluding Murakami from the vote was justifiable, as it sought to represent the wishes of general shareholders. The company contends that if the activists were to gain effective control, it could undermine corporate value and potentially lead other shareholders to sell their holdings under pressure.

In response to the meeting’s outcome, Murakami’s group, which advocated for the spin-off of Cosmo’s renewable energy division and the consolidation of its refineries, issued a statement declaring the vote unjustified and invalid. The group criticized management for denying unwelcome shareholders their voting rights, deeming it entirely unacceptable.

Previously, the activist group had cautioned that such exclusionary and oppressive voting methods could intensify the risks of entrenchment within management and potentially hinder corporate governance advancements in Japan.

Following the announcement of the vote results, Cosmo’s shares experienced a reversal, closing down by 3.4%. The company intends to release detailed information regarding the vote on Friday.

Stephen Givens, a corporate lawyer based in Tokyo, noted that while “majority of minority” conditions are commonly employed to safeguard general shareholders during a buyout by a controlling shareholder, their use to restrict certain shareholders from voting is unprecedented outside Japan. Governance experts express concerns that such voting practices undermine shareholder equality and may embolden Japanese companies to retain criticized cross-shareholdings as a defense against hostile takeovers.

Givens further remarked that the idea of elected directors unilaterally determining which shareholders can exercise their voting rights contradicts the principles of shareholder democracy.

The Cosmo vote occurs amid Japan’s ongoing efforts to establish a code of conduct aimed at fostering mergers and acquisitions. Drafts of the code stipulate that “majority of minority” votes should only be permissible in truly exceptional and limited circumstances, as they could potentially discourage even desirable takeover attempts.

The initial precedent for such a vote was set in 2021 when Tokyo Kikai Seisakusho, a manufacturer of newspaper printing presses, obtained support from the Supreme Court. At that time, the company had excluded its largest shareholder, who held a stake of approximately 40%.

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