Strategic Capital: Re: Shareholder Proposal to NIPPON STEEL CORP. (TOKYO Code 5401)

TOKYO--( BUSINESS WIRE )-- Strategic Capital, Inc. (hereinafter referred to as “SC”) is under a discretionary investment contract with INTERTRUST TRUSTEES (CAYMAN) LIMITED SOLELY IN ITS CAPACITY AS TRUSTEE OF JAPAN-UP (hereinafter referred to as the "Fund") and the Fund and SC (hereinafter referred to as the “Proposing Shareholder”) hold over 300 units of voting right of Nippon Steel Corp. (hereinafter referred to as "Nippon Steel" or the “Company” as the context requires) over 6 months.

The Proposing Shareholder is pleased to announce its execution of the shareholders’ right to make a proposal at the annual shareholder meeting held in the coming June.
The Company has set global crude steel production capacity of 100 million tons and consolidated business profit of JPY 1 trillion as its key indicators (“key indicators”) and is currently aiming to acquire U.S. Steel. To promote the acquisition, Nippon Steel is emphasizing the benefits to U.S. Steel, but the Proposing Shareholder doubts that the corporate value of Nippon Steel’s subsidiaries will necessarily increase as a result.
As of March 31, 2025, Nippon Steel had five listed subsidiaries in Japan, four of which had a PBR less than 1x and they are leaving the negligent management of these companies unchecked. In addition, the subsidiaries have deposited large amounts of surplus funds in the form of deposits and loans to the Company, which has caused their capital efficiency to deteriorate, and the majority of their directors are alumni of Nippon Steel.
In addition, the Company’s stock valuation itself has also stagnated below 1x PBR for a long time.
The Proposing Shareholder in an effort to correct such negligent management of Nippon Steel is making the following proposals.

(1) Revision of the provisions of articles with regard to the management of subsidiaries

There is a risk of conflict of interest with minority shareholders of the subsidiary. For example, for years, the listed subsidiary has provided a large amount of funds to the Company at interest rates well below the subsidiary's cost of equity, resulting in a decline in capital efficiency and a loss of profit for minority shareholders.

If the Company wishes to continue to enjoy the same benefits as before, these subsidiaries should be converted to wholly owned subsidiaries and taken private. If the parent-subsidiary listing is to be maintained, the Corporate Governance Report should clearly state the reasons for maintaining the parent-subsidiary listing, etc., while seeking to expand the common interests of both shareholders and protect the interests of the minority shareholders of the subsidiary.

In addition, listed subsidiaries that violate or are highly likely to violate the criteria for maintaining listing are required to provide greater protection to minority shareholders.

(2) Grant restricted stock compensation and to change the composition of fixed, performance-linked and stock-based compensation of the Representative Director

The proposal contemplates the introduction of stock-based remuneration for Representative Directors and a change in the ratio of fixed, performance-linked and stock-based remuneration.

Currently, the Representative Directors' remuneration is composed of fixed and performance-linked remuneration at a 50:50 ratio, with no stock-based remuneration.

Despite the key indicators mentioned above, shareholder value will not necessarily increase unless investments, acquisitions, etc. are made at appropriate prices.

For this reason, stock-based remuneration should be introduced for representative directors to strengthen incentives to increase shareholder value.

(3) Addition of clawback clause to performance-linked remuneration of Representative Directors

This proposal seeks to defer the payment of performance-linked remuneration to the Representative Director and partial forfeiture in the event of losses related to a company acquired in the future.

While the above-mentioned acquisition may have great growth potential, concerns remain as to whether the increased scale of the acquisition will lead to increased shareholder value.

Given the noted condition of the Company's listed subsidiaries in Japan there is doubt that the corporate value of a subsidiary acquired will necessarily increase as a result of the acquisition.

Therefore, in the event of an impairment or other loss related to a company acquired after the AGM, the Company should recalculate performance-linked remuneration after taking into account of the amount of such loss, and reduce the amount paid.

Details

Please see below for the full version of the shareholder proposal.
https://stracap.jp/english/wp-content/uploads/2025/04/Shareholder-Proposal-to-NIPPON-STEEL-CORP-1.pdf

Disclaimer

This press release is an abbreviated reference translation of the original announcement in Japanese. In the event of any differences between the original Japanese version and the translation, the original Japanese version shall prevail.

View source version on businesswire.com: https://www.businesswire.com/news/home/20250421097542/en/