Shareholder Education in Light of Triangular Mergers….

Today’s WSJ talked about Citi’s subsidiary taking over Nikko. This would be Japan's first major triangular merger, in which a foreign company uses a local subsidiary to buy a Japanese firm using the parent company's shares as payment. In answer to a concerned shareholder’s questioning of Citi’s business strategy and it’s understanding of cultural differences between Japan and US, Douglas Peterson, Citigroup Japan Holdings, Chief Executive cited as evidence of success Citi’s presence in Japan for 100 years and a nine year partnership with Nikko.

Is long term presence in a foreign country enough evidence of success? On the surface, the answer might be yes. However, there are quite a few issues to be considered. Transaction with affiliates, transfer pricing, subsidies extended by the parent company, long term business strategy are all valid considerations. Douglas Peterson could not have shared all of this information with the concerned shareholder at the meeting.

Is this an area of investor activism that needs attention? If someone is going to ask slightly more than cursory questions, then maybe there should be a forum to address these questions with suitable data. Or, is this an example of owners meddling with management who are assumed to work for the purposes of increasing shareholder wealth until proven guilty? Where do we draw the fine line? And, how do we educate shareholders about significant strategy details. Please bear with me while I work on the answers to these questions.