May 15, 2017
Notice Regarding Simplified Share Exchange Making Consolidated Subsidiary Japan Radio Co., Ltd. A Wholly Owned Subsidiary (Summary)
Nisshinbo Holdings Inc. (hereinafter "Nisshinbo Holdings") and Japan Radio Co., Ltd. (hereinafter "JRC"), at their respective board of directors meetings held on May 15, 2017, have approved a Share Exchange Agreement between the two companies that will make Nisshinbo Holdings the sole parent company and JRC its wholly owned subsidiary. In carrying out the Share Exchange, Nisshinbo Holdings intends to use simplified share exchange procedures without obtaining approval at a general shareholders meeting; JRC intends to seek approval for the Share Exchange by resolution at its general shareholders meeting.
1. Objectives of Share Exchange
JRC, Nagano JRC, and Ueda JRC have been working together in the electronics business with the support of Nisshinbo Holdings since September 2012, striving to restructure their businesses and renew growth by implementing the growth strategies and global cost structure reforms that are at the heart of the Group's business plan. Prior to this, JRC, Nagano JRC, and Ueda JRC had completed the relocation and consolidation of operations centers and had also been recapitalized.
What is left to be done now is accelerate the implementation of the Group's growth strategy, which will involve shifting the bulk of electronic sales from Japan to emerging market countries (mainly in Asia), shifting the business's dependence from public sector to private sector demand, and contributing to the creation of a super smart society. Another urgent task is cost structure reforms that will strengthen the business's earnings structure. By making JRC a wholly owned subsidiary and unifying business operations, Nisshinbo Holdings will accelerate the implementation of both its growth strategy and cost structure reforms.
(1) Implementation of Growth Strategy
I. Expansion of Super Smart Society-related Businesses
As part of its medium/long-term strategy, the Nisshinbo Group will work to help bring about the creation of a super smart society through the creation of products and systems and that will combine the Group's communications technology with its sensing technology that takes advantage of the advances in IoT and AI-related technologies.
JRC and Nisshinbo Holdings have already established cross-organizational ties to help build their ADAS business. However, they now must work together and combine JRC's expertise in wireless communications technology and Nisshinbo's expertise in mechatronics and chemical technologies to facilitate the development of products for a super smart society, creating not just an R&D organization but manufacturing and sales organizations as well. As it moves towards unifying the operations of cooperative ventures, the Group will also be able to accelerate the creation a new business structure.
II. Development of Global Businesses
The Group will also be able to push ahead more efficiently with the development of global businesses by making use of the track record of Nisshinbo's expansion in Asia and its established network, much as it did when JRC established a local subsidiary in Indonesia.
Using Nisshinbo's subsidiary in Singapore as its starting point, the Group will also be able to expand businesses in Southeast Asia, raise the necessary capital, and improve risk management. The Group will also be able to make use of the resources of Nisshinbo Shanghai Co., Ltd. as it pursues a similar path at its businesses in China.
(2) Cost Structure Reforms
In order to implement the Group's growth strategy both aggressively and decisively, Nisshinbo Holdings and JRC must unify their operations so that management resources can be allocated efficiently. The financial strength of Nisshinbo Holdings will also allow the capital needed for mergers, acquisitions, and new business to be raised more efficiently.
By unifying operations, the Group may also be able to reduce administrative costs by moving to share and consolidate distribution centers, and sharing more services for back office functions.
2. Overview of Share Exchange
(1) Calendar of Share Exchange-related Events
|Approved by Board of Directors (both companies)||
May 15, 2017
|Share Exchange Agreement signed (both companies)||
May 15, 2017
|Record date for ordinary general shareholders meeting (JRC)||
March 31, 2017
|Ordinary general shareholders meeting (JRC)||
June 26, 2017 (scheduled)
|Last trading day for JRC shares||
September 26, 2017 (scheduled)
|JRC shares delisted from stock exchange||
September 27, 2017 (scheduled)
|Share Exchange Agreement goes into effect||
October 2, 2017 (scheduled)
(2) Share Exchange Method
The Share Exchange will leave Nisshinbo Holdings as the sole parent company and JRC as its wholly owned subsidiary.
(3) Details of Allotment of Shares related to Share Exchange
The Share Exchange Agreement sets the share exchange ratio at 1.28 shares of Nisshinbo Holdings common stock for every one share of JRC.
Note 1: Regarding number of Nisshinbo Holdings shares involved in Share Exchange
The number of shares that Nisshinbo Holdings will exchange in return for the shares held by JRC shareholders* will be calculated based on the share exchange ratio (detailed above) and the number of shares of JRC outstanding** on the day before Nisshinbo Holdings acquires all outstanding shares of JRC (hereinafter referred to as the "base date").
* As the shareholder following the retirement of treasury stock as discussed below, this will exclude Nisshinbo Holdings.
** This excludes the 20,278,883 shares of JRC already owned by Nisshinbo Holdings as of May 15, 2017.
All of the Nisshinbo Holdings shares that will be exchanged by Nisshinbo Holdings in the course of the Share Exchange are expected to be drawn from treasury stock (20,013,820 shares, as of March 31, 2017); no new shares are expected to be issued.
In addition, pursuant to a resolution at a meeting of the JRC board of directors scheduled to be held by the last day before to the effective date of the Share Exchange Agreement, JRC intends to retire all of the treasury shares it holds on the base date. This will include any shares that JRC may acquire through share buybacks undertaken in response to shareholder requests for share buybacks in connection with the Share Exchange (in accordance with Article 785, Paragraph 1, of the Companies Act). The number of shares to be exchanged may be amended prior to the base date due to changes in the number of shares held by JRC as treasury stock.
Note 2: Handling of shares constituting less than one trading unit (odd lots)
The standard trading unit being 100 shares, it is expected that the Share Exchange will result in additional investors owning odd lots of Nisshinbo Holdings shares. In particular, it is anticipated that JRC shareholders who currently hold fewer than 79 shares will be left with fewer than 100 shares of Nisshinbo Holdings after the Share Exchange, and would not be able to sell the shares they receive on the stock exchange. Shareholders of Nisshinbo Holdings left with odd lots may take advantage of one of the following programs:
(a) Buyback program for shares constituting less than one trading unit (100 shares)
Pursuant to Article 192, Paragraph 1, of the Companies Act, Nisshinbo Holdings shareholders with shares constituting less than a whole trading unit are entitled to request the purchase of their odd lot of shares by Nisshinbo Holdings.
(b) Additional share purchase program for odd-lot shareholders (to bring holdings up to 100 shares) Pursuant to Article 194, Paragraph 1, of the Companies Act, and the Articles of Incorporation of Nisshinbo Holdings, Nisshinbo Holdings shareholders with shares constituting less than a whole trading unit are entitled to request the sale of additional Nisshinbo Holdings shares by Nisshinbo Holdings in such number as is necessary to complete a whole trading unit.
Note 3: Treatment of fractional shares
Pursuant to Article 234 of the Companies Act and other applicable laws and regulations, JRC shareholders receiving any fraction of less than one Nisshinbo Holdings share in the course of the Share Exchange are entitled to receive in exchange monetary payment in proportion to the value of their fractional share holdings.
3. Overview of Accounting Treatment
The Share Exchange is expected to constitute a transaction under common control that is a transaction with minority shareholders.
Because JRC is already a consolidated subsidiary of Nisshinbo Holdings, the impact of the Share Exchange on the sales and earnings of Nisshinbo Holdings and JRC is expected to be minor in both cases.