Palliser to Vote Against President Kobayashi and Other Directors at Forthcoming AGM to Break Keisei’s Destructive Cycle of Inaction and Management Entrenchment

• Palliser believes full Board culpable but six Board nominees, including President Kobayashi and the outside members of the Nomination / Compensation Committee, should be immediately opposed by shareholders
• Calls for accountability after egregious governance failings, including the cross-shareholding with Aeon, and an indefensible D2 Plan – displaying contempt for shareholder concerns and a disregard of TSE guidelines
• Removal of these directors lays the foundation for overdue governance reform and to restore management accountability

Palliser Capital (“Palliser”), one of the largest shareholders of Keisei Electric Railway Co., Ltd. (9009 JT) (“Keisei” or the “Company”) with a shareholding over 4.5%, today published an open letter and detailed presentation criticising Keisei’s superficial D2 Plan and ineffectual Board changes for its Annual General Meeting (“AGM”) scheduled for June 27, 2025.

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Palliser’s materials detail the dereliction of responsibility for which the full Board is culpable – but which has been led by President Kobayashi and the other members of the Nomination / Compensation Committee – resulting in:

1. Keisei’s chronic long-term underperformance and governance failings;
2. A dire D2 Plan that displays an arrogant disregard for shareholders and TSE guidelines;
3. Ongoing management entrenchment reinforced by a new Aeon cross-shareholding, retention of the oversized OLC stake and a market outlying 100% fixed compensation structure for Management; and
4. The rejection of Palliser-identified outside director candidates following a choreographed, superficial and pre-determined “interview” process – instead, retaining a bloated Board dominated by insiders and lacking effective management oversight.

As a result, at the AGM, Palliser will vote AGAINST:

• The re-election of President and Chair-designate Toshiya Kobayashi;
• The re-election of outside directors Shotaro Tochigi, Misao Kikuchi, and Takako Amitani (each of whom serves on the Nomination / Compensation Committee); and
• The election of new inside directors Kunihiko Yoshikawa and Takeshi Hashimoto.

Palliser believes these changes – resulting in a 9-member Board with continuity in management and a more appropriate market-aligned number of inside directors – are essential to remove the roadblocks to reform at Keisei and lay the foundation for further Board reconfiguration at a future meeting to restore accountability and unlock long-term value for all stakeholders. Palliser encourages other shareholders to carefully consider their own voting position at the AGM given the vital objectives at stake.

Full details relating to Palliser's ongoing engagement are available at KEISEI100.com

The full text of Palliser’s letter follows:

5 June 2025

3-3-1 Yawata, Ichikawa City, Chiba Prefecture 272-8510

Keisei Electric Railway Co., Ltd. (“Keisei” or the “Company”)

Dear Kobayashi-san and the Members of the Keisei Board of Directors (“Board”)

A missed opportunity and failure of leadership at Keisei¹

Introduction

We write to you following the recent publication of Keisei’s D2 Plan (“D2 Plan”) and Notice of Keisei’s 2025 AGM, which is scheduled for 27 June 2025 (“AGM”).

For reasons we explained at length in our open letter to the Board on 24 April (see link), investors expected the Company to take three critical immediate steps: (1) announce a credible D2 Plan to address persistent underperformance and ongoing chronic undervaluation, thereby signalling a convincing shift in direction for the Company; (2) reconfigure the Board as part of a long-overdue governance overhaul; and (3) undertake a thorough and transparent evaluation of best-in-class independent outside Board candidates we identified following a comprehensive search.

The Board has chosen to do none of this and, in so doing, has dismissed or ignored well-established serious concerns held by numerous stakeholders, including large shareholders such as Palliser. In particular:

1. The D2 Plan was a huge disappointment - representing nothing short of a dereliction of responsibility by the Board. Judging by the precipitous fall in the Company’s share price – wiping out JPY 85 billion (c. US$590 million) in Keisei’s market value – and widespread negative sentiment following publication, investors felt seriously let down. This was inevitable for an MTP which failed to deliver on any of the critical areas we highlighted as a bare minimum to help stem ongoing value destruction at Keisei, including a robust capital allocation policy sidelined completely for an inappropriately vague cash allocation framework without any reference (throughout the D2 Plan) to the OLC stake, despite accounting for more than around 80% of Keisei’s capital.
2. The Company’s proposed Board changes do nothing to address the existing bloated Board, excessive number of inside directors and shortfall of genuinely independent outside directors with the skills and experience necessary to ensure effective oversight and accountability of management.
3. It is also now apparent that the Company had no genuine intention of considering the appointment of the Palliser-identified outside director candidates. There was simply no appropriate process for this. Candidates were “interviewed” for around 20 minutes, on average, with the same five scripted questions as part of what appears to have been a choreographed and superficial window-dressing exercise to justify a decision to reject them.

Whilst culpability for the Company’s failings - including chronic long-term underperformance, an ongoing disregard of stakeholder interests, the new Aeon cross-shareholding, 100% fixed executive pay and a wholly inadequate D2 Plan - sits with the full Board, responsibility ultimately rests with President Kobayashi-san. He has taken zero accountability. In fact, having hand-selected a successor as CEO while transitioning to a new Chair role and maintaining a seat on a Board which is unable to hold the inside directors accountable, Kobayashi is set to maintain a dominating influence over the management of Keisei.

Significant blame also falls on the other members of the Nomination/Compensation Committee (“N&C Committee”). Not only have these directors propped up Keisei’s shocking fully fixed executive pay structure – a practice rendering Keisei an outlier among TSE companies - they bear responsibility too for token and ineffective Board changes, including a leadership transition in name but not substance. This is not to mention a superficial and insincere sham appraisal of standout Palliser Board candidates who could have helped transform Keisei governance but were all rejected without justification. The result is a serious catalogue of failings as N&C Committee members that harms all Keisei stakeholders by reinforcing Board unaccountability and perpetrating a cycle of unresponsiveness and inaction at the Company.

Such dismal scorecards for Kobayashi and the outside members of the N&C Committee – Shotaro Tochigi, Misao Kikuchi and Takako Amitani, both in their capacity on the N&C Committee, as well as on the Board, approving the hugely disappointing D2 strategy – warrant their immediate removal from the Board. This is why Palliser intends to vote AGAINST the re-election of these four directors at the AGM and encourages other shareholders to consider their own voting position carefully.

In addition, Palliser will vote AGAINST the election of Kunihiko Yoshikawa and Takeshi Hashimoto as new directors whose appointment as inside directors would be unnecessary and add to a bloated and unbalanced Board, as well as being the product of a flawed director nomination process. We likewise encourage other shareholders to consider their own voting position carefully.

Absent these directors post-AGM, a Board of nine, including President-designate Takao Amano for continuity, will enable Keisei to break the destructive cycle of inaction and management entrenchment and lay the foundation for the appointment of additional best-in-class outside directors with the requisite skills and independence needed to revitalise Keisei with a peer-aligned Board.

An indefensibly inadequate D2 Plan

The long-awaited D2 Plan was a pivotal moment for Keisei given the chronic undervaluation and underperformance we discussed at length in our open letter of 24 April (link). It represented a decisive opportunity for the current Board under Kobayashi’s leadership to demonstrate, through market-leading initiatives, a willingness to take appropriate remedial action to address these long-term problems.

It is highly regrettable therefore that the Board has intentionally rejected this opportunity to showcase a new direction for Keisei through an evident refusal to include even the most basic, but vital, peer-aligned measures in the D2 Plan in conformity with fundamental TSE guidelines. Specifically, we see:

• A vague cash allocation policy rather than a robust capital allocation framework, with no disclosures on source of funds and capex returns;
• No reference to the OLC stake anywhere in the D2 Plan despite a groundswell of support from shareholders for significant trapped value constituting around 80% of Keisei’s capital to be unlocked by right-sizing the stake to below 15%. The absence of a credible plan means a continuation of the current cycle of management entrenchment and value destructive reckless approach to disposals (noting that the value of Keisei’s OLC stake declined by around JPY 500 billion (c. US$3.5 billion) between Palliser’s call last year for a right-sizing and a subsequent 1% sale around eight months later to fund the Aeon cross-shareholding);
• A minimal increase in the dividend payout ratio which remains at an unacceptable level with a forecasted drop in the dividend for FY26;
• No share buyback programme or detailed total shareholder return policy for shareholder returns;
• A continuation of 100% fixed executive pay and therefore no performance-linked compensation, leaving Keisei out of step with peers and an outlier across Japanese and global markets;
• A failure to address fundamental shareholder concerns about the inexplicable Aeon cross-shareholding - brazenly disregarding deep-rooted shareholder concerns and failing to explain what is achieved with a governance- and capital-damaging cross-shareholding versus a business alliance alone; and
• No alignment with TSE guidance or attempt to correct course on misleading performance metrics – an ROE target of 8% through to 2027 actually equates to Keisei maintaining true ROE of less than 1% for the next 3 years, albeit this is masked (and associated voting pressure against the directors is alleviated) by the deliberate decision to maintain an over-sized OLC stake.

The upshot is a D2 Plan with all the hallmarks of the lack of accountability, misaligned interests and management entrenchment we discussed in our 24 April open letter. In practical terms, it is simply ill-equipped to meet the acute challenges of the Company, including chronic underperformance and systemically inadequate corporate governance, the root cause of which is a Board that is inappropriately constituted and unaccountable to the Company’s stakeholders.

Company-proposed Board changes represent a step backwards for Keisei governance

Keisei requires a level of governance reform that is both robust and holistic, including a comprehensive reconfiguration of the Keisei Board as a key first step. As things currently stand, the Board suffers from a lack of proper checks and balances and mix of skills and experience - a combination of shortcomings that promotes a dangerously undisciplined approach to capital allocation, a disregard of TSE guidance and reforms and a failure to make even the most basic changes required to reverse the Company’s underperformance and undervaluation. All of this is acutely apparent in the woeful D2 Plan. It is unsurprising therefore that sensible Board reform is something that, according to our own market outreach efforts, a vast number of Keisei shareholders – both domestic and international, retail and institutional, large and small – wish to see.

This is why we called on the Board to announce a concrete plan of action to make the changes needed to reduce the Board in size to a much more appropriate, dynamic and market-aligned 11 members, including at least 6 truly independent outside directors and no more than 5 inside directors.

However, rather than recognise and act on the strong market sentiment surrounding this issue by taking easily achievable steps towards appropriate Board re-dimensioning, Kobayashi and the other N&C Committee members, in particular, stubbornly refuse to acknowledge the problem:

• Instead of reducing the size of the Board and aligning it with peers and the market, Kobayashi and the N&C Committee are clearly intent on perpetuating a bloated Board of 15 directors;
• While Masako Tomizuka as the one new outside director appointment may be cited as evidence of strengthening Board independence, this token change keeps outside directors in the minority and does nothing to address the significant independence concerns we have highlighted which impact the legacy outside director cohort; and
• No attempt has been made to optimize the balance of skills and experience among the outside directors, including with respect to capital allocation, capital markets, business management and strategy.

These changes therefore represent a step backwards in our view – a wasted opportunity to foster the creation of a new and revitalised Board benefitting from a truly independent and robust set of outside directors who are able to provide effective oversight and support the Keisei executive team.

Disingenuous evaluation of Palliser-identified Board candidates

We attempted multiple times ahead of sending our open letter on 24 April to secure a preliminary discussion with the Board about the independent outside director candidates Palliser had identified through an extensive search using a leading Japan-based international executive search firm. As we said, our objective was to obtain more information about the nomination process, Keisei’s perspectives on Board composition and the prospects of a Company-led consensual process to appoint new directors and streamline the Board.

Although we gave the N&C Committee the benefit of the doubt after the Company finally agreed to “interview” the candidates, assuming they would at least be given a fair hearing, we were wrong. The N&C Committee seemingly conducted a sham process. For instance, the candidates were invited to attend the Company’s offices at the same time, on the same day, and were each given 20 minutes on average to answer the same pre-configured set of questions, with reports that Kobayashi “spent most of the meeting scrolling on his iPhone” and with meetings being brought to close with a Company bell.

This superficial interaction was the extent of the evaluation by the N&C Committee and something we were concerned about from the outset. It is the reason we made repeated requests in the first place to meet with the N&C Committee to discuss the process, raised several questions in writing with the N&C Committee (which were ignored) and later sought transparency on progress following the candidate “interviews” (a request which was also ignored).

While our lack of faith in the Board’s nomination processes makes it unsurprising the Company has ultimately rejected our proposed candidates, it is no less disappointing given the transformational impact these candidates could make as truly independent stalwarts of the Japanese business community.

Kobayashi’s continuing domination of the Board and a broken N&C Committee represent fundamental barriers to change

We called previously for constructive agreement on key go-forward governance initiatives and an optimal slate of director candidates for the AGM, noting the importance of Keisei regaining market trust through a process of constructive self-help rather than by shareholder intervention at an EGM.

We were ignored. Led by Kobayashi, the Board approved an indefensible D2 Plan knowing only too well it would never come close to meeting market expectations, thereby demonstrating a complete disregard for the basic governance enhancements and TSE- and peer-aligned measures needed to resolve Keisei’s persistent undervaluation.

Notwithstanding this failure of leadership, Kobayashi is set to retain significant influence over the management of the Company as “Kaicho” (Chair) and as an inside director. As Kobayashi himself has said, he will “support and advise” President-designate Amano as his hand-picked successor – guided by a deeply underwhelming strategy underpinned by a flawed D2 Plan for which Kobayashi himself is ultimately responsible.

This is therefore a leadership “transition” that will result in unclear roles, blurred accountability and continued management entrenchment with President-designate Amano’s ability to effect meaningful change as CEO constrained from the outset by a Board and executive team that remain dominated in practice by Kobayashi.

Moreover, Kobayashi has, until now, led the N&C Committee, which also shoulders responsibility for the governance crisis at Board level and ongoing governance failures, such as the inexplicable 100% fixed pay structure for Management which feeds directly into the culture of unaccountability at Keisei. By failing to conduct a proper process to evaluate the standout outside director candidates proposed by Palliser, the N&C Committee also demonstrated an arrogant disregard of stakeholders in favour of a carefully choreographed exercise designed to perpetuate management entrenchment.

These directors have pitted themselves against critically important change at Keisei that would re-pivot the Company onto a better path forward. If the Company stands any chance of implementing a self-help strategy without being forced to do so through shareholder intervention, Kobayashi and the outside members of the N&C Committee must stand down and relinquish their roles at Keisei.

Using the AGM to create a foundation for a market-aligned Board to break the destructive cycle of inaction and unaccountability at Keisei

Whilst culpability for Keisei’s failings rests with all of the directors, the removal from the Board of Kobayashi and the outside members on the N&C Committee, and averting the appointment of two new inside directors, is the essential first step to address Keisei’s systemic undervaluation and governance failings.

These immediate Board changes will mean accountability for:

• Keisei’s chronic long-term underperformance and governance failings;
• a dire D2 Plan that displays an arrogant disregard for shareholders and TSE guidelines; and
• ongoing management entrenchment reinforced by a new Aeon cross-shareholding, retention of the oversized OLC stake and a market outlying 100% fixed compensation structure for Management.

Such Board changes would also cure the damaging influence of a former President on future strategic and governance decision-making at Keisei without risking continuity with Amano – a director since 2016 – as President-designate.

Palliser will therefore exercise one of the most important rights afforded to it as a shareholder of the Company by voting at the AGM AGAINST:

1. the re-election to the Board of President and Chair-designate Toshiya Kobayashi;
2. the re-election to the Board of Shotaro Tochigi, Misao Kikuchi and Takako Amitani, all current outside members of the N&C Committee; and
3. the election to the Board as new inside directors of Kunihiko Yoshikawa and Takeshi Hashimoto.

This would leave a Board of nine post-AGM, including President-designate Takao Amano for continuity, as a foundation for further Board reconfiguration at an EGM or other appropriate juncture, to include the appointment of new best-in-class outside directors with the requisite skills and independence needed to revitalise Keisei in the interest of all stakeholders.

We likewise encourage other shareholders to carefully consider their own voting position at the AGM given the vital objectives at stake.

Sincerely,

For and on behalf of

Palliser Capital (UK) Ltd

James Smith

Chief Investment Officer

About Palliser Capital

Palliser Capital is a global multi-strategy fund. Our value-oriented investment philosophy is applied to a broad range of opportunities across the capital structure with a focus on situations where positive change and value enhancement can be achieved through thoughtful, constructive and long-term engagement with companies and across a range of different stakeholder groups. Palliser Capital is one of the largest Keisei shareholders with a stake in excess of 4.5%.

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