DRIVEN BASE

Notice Regarding Tender Offer for Repurchase of Own Shares

Apr. 28, 2017

Kariya (Japan) ― DENSO corporation (“the Company”) hereby provides notice that it resolved to conduct a tender offer for the repurchase of its own shares at a meeting of the Board of Directors on April 28, 2017, as outlined below, using the acquisition method specified under Article 156, Paragraph 1 of the Companies Act (No.86 of 2005, including its amendments in the later eras), as applied pursuant to the provisions of Article 165, Paragraph 3 of the same Act, and the provisions of the Company’s Articles of Incorporation.

1. Purpose of tender offer

The Company will continue to raise dividends payment sustainably with taking into accounts its consolidated results, consolidated dividend payout ratio, and dividend amount. Therefore, the Company makes efforts to develop management bases for adapting to environmental changes flexibly and improve consolidated results. The Company’s Articles of Incorporation prescribe that the Company can pay dividend by resolving not only at a shareholders meeting but also at a meeting of the Board of Directors, under the provision of Article 459 of the Companies Act, and the Company appropriates its internal reserve for capital investment, research and development expenses, and repurchase of own shares for shareholders returns.

  The Company’s Articles of Incorporation also prescribe that the Company can repurchase its own shares by resolving at a meeting of the Board of Directors, under the provision of Article 165, Paragraph 2 of the Companies Act, so that the Company can promote shareholders returns, enhance capital efficiency, and execute capital policies for adapting to environmental changes more flexibly. In 2016 fiscal year, the Company acquired 6,952,600 of its own common shares by discretionary trading via securities company at the period from August 4, 2016 to September 9, and also from 2016, October 3, 2016 to November 30, 2016 in accordance with the resolution by the Board of Directors meeting held on July 29, 2016. The Company also canceled 90,000,000 of its own shares in August 25, 2016, within 91,247,010 of all own shares the Company possessed as of the day of board meeting.

  The Company considered various options regarding the specific method for returns to shareholders based on its capital policies described above. At the end of December 2016, from the view point of being able to acquire considerable number of its own shares in relatively short terms without losing capital efficiency if the Company repurchase its own shares from a large shareholder, the Company started to examine repurchasing its own shares from Toyota Motor Corporation (“Toyota Corporation”), who is the largest shareholder of the Company, which holds 194,948,856 of the Company’s common shares as of March 31, 2017, and its shareholding represents 24.55% (rounded to two decimal places; the same applies hereafter in calculating the percentage of the total number of issued shares.) of all the Company’s issued shares, 794,068,713.

  At the beginning of March 2017, the Company concluded that the method of a tender offer would ensure an opportunity for shareholders to tender their shares while watching the trend in the market price during the prescribed offer period (hereinafter referred to as the “tender offer period”), was the most suitable from the viewpoint of both the equitable treatment of shareholders and the transparency of the transactions. When deciding on the purchase price for the tender offer (referred to as the “tender offer price” hereafter), the Company also concluded that it would be desirable to conduct a tender offer at a price representing a certain discount to the market price. The tender offer price is based on the market price, with a focus on ensuring the precision and objectivity of the criteria used to determine the tender offer price and with a view towards setting a tender offer price that is below the market price in order to stem the outflow of assets from the Company, to the extent possible, from the perspective of respecting the interests of shareholders who will continue to hold the Company’s common shares. Thus, the Company decided to communicate with Toyota Corporation regarding the implementation of the tender offer, in which the tender offer price represented a discount of around 10% versus the closing price of the Company’s common shares on the First Section of the Tokyo Stock Exchange on the business day.

  In early March 2017, the Company asked Toyota Corporation if they would apply for tender offer based on the conditions above. As a result, at the end of March 2017, the Company received an answer from Toyota Corporation that they would apply 6,000,000 of the Company’s common shares (0.76% of total number of issued shares), which was a part of 194,948,856 shares (24.55% of total number of issued shares) which Toyota Corporation holds.

  After examining and determining the above issues, the Company resolved to conduct the tender offer for repurchasing its own shares, using the acquisition method specified under Article 156, Paragraph 1 of the Companies Act, as applied pursuant to the provisions of Article 165, Paragraph 3 of the same Act, and the provisions of the Company’s Articles of Incorporation, and set a tender offer price of 4,321 yen (rounded to the nearest yen; the same applies hereafter in calculating the tender offer price.) by applying a discount of 10.00% to the 4,801 yen (rounded to the nearest yen; the same applies hereafter in calculating the simple average of closing price.), which is the simple average of closing prices for the Company’s common shares on the First Section of the Tokyo Stock Exchange over the one-month period ending April 27, 2016, the business day before the meeting of the Board of Directors held on April 28, 2017. Also, in order to provide an opportunity for other shareholders exclude Toyota Corporation to tender their shares, the Company set a maximum limit of 6,600,000 (0.83% of the total number of issued shares) on the number of shares the Company intends to purchase.

  Moritaka Yoshida, an outside auditor of the Company concurrently serving as a senior managing officer of Toyota Corporation, did not take part in the examination and resolution by the Board of Directors regarding the tender offer on April 28, 2017 and was not involved in discussions and negotiations with Toyota Corporation from the standpoint of the Company, from the perspective of avoiding arbitrariness in the process of the Company’s decision-making when examining and determining the tender offer.

  Regarding a source of funds, the Company plans to appropriate initial resources for repurchasing own shares. The Company holds 793,550 million yen as a short-term liquidity (cash and cash equivalents) on a consolidated basis as of March 31, 2017, which is enough to keep high liquidity, and a specific sum of cash-flow by business enterprise is expected to be accumulated additionally. Therefore, the Company considers it is able to keep financial soundness and safety even after tender offer.

  Furthermore, the Company received an explanation from Toyota Corporation that it is Toyota Corporation’s policy at present, in principle, to tender 6,000,000 of the Company’s shares (0.76% of total number of issued shares) and hold 188,948,856 of the Company’s common shares (23.80% of the total shares issued) after the tender offer as well, after it is resolved to conduct a tender offer for the repurchase of its own shares at a meeting of the Board of Directors on April 28, 2017. The Company has no plans for the disposition regards to the portion of Company shares acquired as a result of the tender offer at present.

2. Details of Board of Directors resolution regarding share repurchase

(1) Details of resolution

Share class

Total number of shares

Total acquisition cost

Common shares

6,600,100 shares (maximum)

28,519,032,100 yen (maximum)

Note 1    : Total number of issued shares: 794,068,713 (as of April 28, 2017)

Note 2    : Percentage of total number of issued shares: 0.83% (rounded to two decimal places)

Note 3    : Term of acquiring: from Monday, May 1, 2017 to Friday, June 30, 2017

(2) Listed shares for Company shares already repurchased based on this resolution

Not applicable.

3. Outline of tender offer

(1) Timetable

(A)

Board of Directors resolution

Friday, April 28, 2017

(B)

Date of tender offer commencement notice

Monday, May 1, 2017

Notices will be posted electronically, and a notice to this effect will be published in the Nihon Keizai Shimbun.

Electronic notice address: http://disclosure.edinet-fsa.go.jp/

(C)

Tender offer registration statement submission date

Monday, May 1, 2017

(D)

Tender offer period

From Monday, May 1, 2017

To Wednesday, May 31, 2017(20 business days)

(2) Tender offer price

4,321 yen per common share

(3) Basis for calculating the tender offer price

(A) Calculation basis

  When deciding on the purchase tender offer price, the Company concluded that it would be desirable to conduct a tender offer at a price representing a certain discount to the market price with a focus on ensuring the precision and objectivity of the criteria used to determine the tender offer price and with a view towards setting a tender offer price that is below the market price in order to stem the outflow of assets from the Company, to the extent possible, from the perspective of respecting the interests of shareholders who will continue to hold the Company’s common shares. Thus, the Company decided to communicate with Toyota Corporation regarding the implementation of the tender offer, in which the tender offer price represented a discount of around 10% versus the closing price of the Company’s common shares on the First Section of the Tokyo Stock Exchange on the business day. In early March 2017, the Company asked Toyota Corporation if they would apply for tender offer based on the conditions above. As a result, at the end of March 2017, the Company received an answer from Toyota Corporation that they would apply 6,000,000 of the Company’s common shares (0.76% of total number of issued shares), which was a part of 194,948,856 shares (24.55% of total number of issued shares) which Toyota Corporation holds.

  After examining the above issues, the Company resolved to set a tender offer price of 4,321 yen by applying a discount of 10.00% to the 4,801 yen, which is the simple average of closing prices for the Company’s common shares on the First Section of the Tokyo Stock Exchange over the one-month period ending April 27, 2016, the business day before the meeting of the Board of Directors held on April 28, 2017.

  Please note that the tender offer price of 4,321 yen represents a discount of 13.02% (rounded to the second decimal place; the same applies hereafter in calculating the percentage of discount price.) on the closing price of the Company’s common shares of 4,968 yen on the business day before April 28, 2017 (April 27, 2017), the date of the Board of Directors resolution on the tender offer; a discount of 10.00% on the simple average of the closing prices for the Company’s common shares over the one-month period ending April 27, 2017 of 4,801 yen (rounded to the first decimal place; the same applies hereafter in calculating the simple average of the closing prices.), and a discount of 13.04% on the simple average of the closing prices for the Company’s common shares over the three-month period ending April 27, 2017 of 4,969 yen on the First Section of the Tokyo Stock Exchange.

(B)Background for Calculation

  The Company will continue to raise dividends payment sustainably with taking into accounts its consolidated results, consolidated dividend payout ratio, and dividend amount. Therefore, the Company makes efforts to develop management bases for adapting to environmental changes flexibly and improve consolidated results.

  The Company considered various options regarding the specific method for returns to shareholders based on its capital policies described above. At the end of December 2016, from the view point of being able to acquire considerable number of its own shares in relatively short terms without losing capital efficiency if the company repurchase its own shares from a large shareholder, the Company started to examine repurchasing its own shares from Toyota Motor Corporation (“Toyota Corporation”), who is the largest shareholder of the Company.

  At the beginning of March 2017, the Company concluded that the method of a tender offer would ensure an opportunity for shareholders to tender their shares while watching the trend in the market price during the prescribed offer period, was the most suitable from the viewpoint of both the equitable treatment of shareholders and the transparency of the transactions.

  When deciding on the purchase price for the tender offer, the Company also concluded that it would be desirable to conduct a tender offer at a price representing a certain discount to the market price with a focus on ensuring the precision and objectivity of the criteria used to determine the tender offer price and with a view towards setting a tender offer price that is below the market price in order to stem the outflow of assets from the Company, to the extent possible, from the perspective of respecting the interests of shareholders who will continue to hold the Company’s common shares. Thus, the Company decided to communicate with Toyota Corporation regarding the implementation of the tender offer, in which the tender offer price represented a discount of around 10% versus the closing price of the Company’s common shares on the First Section of the Tokyo Stock Exchange on the business day.

  In early March 2017, the Company asked Toyota Corporation if they would apply for tender offer based on the conditions above. As a result, at the end of March 2017, the Company received an answer from Toyota Corporation that they would apply 6,000,000 of the Company’s common shares (0.76% of total number of issued shares), which was a part of 194,948,856 shares (24.55% of total number of issued shares) which Toyota Corporation holds.

  After examining the above issues, the Company resolved to set a tender offer price of 4,321 yen by applying a discount of 10.00% to the 4,801 yen, which is the simple average of closing prices for the Company’s common shares on the First Section of the Tokyo Stock Exchange over the one-month period ending April 27, 2016, the business day before the meeting of the Board of Directors held on April 28, 2017.

(4)Number of shares to be purchased

Share class

Anticipated number of shares to be purchased

Number of excess shares to be purchased

Total

Common shares

6,600,000 shares

0 shares

6,600,000 shares

Note 1    :

If the number of shares tendered does not exceed the anticipated number of shares to be purchased (6,600,000 shares), all of the tendered shares will be purchased. If the number of tendered shares exceeds the anticipated number of shares to be purchased (6,600,000 shares), the excess shares will not be purchased, in whole or in part. The transfer and other settlement procedures associated with the purchase of the shares will be carried out using the pro rata method as provided in Article 27-13-5 of the Financial Instruments and Exchange Act (Act No. 25 of 1948, as amended; hereinafter referred to as the “Act”) as applied mutatis mutandis pursuant to Article 27-22-2-2 of the Act and Article 21 of the Cabinet Office Ordinance Concerning the Disclosure of a Tender Offer for Listed Shares by the Issuer (Ministry of Finance Ordinance No. 95 of 1994, as amended).

Note 2    :

Shares of less than one unit will also be subject to the tender offer. Moreover, should the right to request the purchase of shares of less than one unit be exercised by a shareholder in accordance with the Companies Act, the Company may buy its own shares during the tender offer period in accordance with procedures prescribed by law.

(5) Funds required for the tender offer

28,541,100,000 yen

Note       :

This amount is the total of the purchase amount (28,518,600,000 yen), the estimated fees, and other expenses associated with the purchase, such as the cost of public notices associated with the tender offer, the cost of printing the tender offer statement and other documentation, and other such expenses. 

(6) Method of Settlement

(A) Name and head office address of the financial instruments business operator, bank, or other institution in charge of settlement of the tender offer;

SMBC Nikko Securities Inc.  3-1, Marunouchi 3-chome, Chiyoda-ku, Tokyo

(B) Settlement Commencement Date

Thursday, June 22, 2017

(C) Method of Settlement

Notification of the purchases under the tender offer will be sent to the address of tendering shareholders (or the standing proxy for foreign shareholders) after the conclusion of the tender offer period without delay.

Purchases will be settled in cash. Tendering shareholders will be able to receive the purchase amount for the tender offer, less applicable withholding taxes (see note), by wire transfer or other method as instructed by the tendering shareholder without delay after the settlement commencement date.

Note         : Taxes on shares purchased under the tender offer

*Please make any decisions after consulting a tax advisor or other professional about specific tax questions.

(a) For tendering shareholders who are residents, or non-residents with a permanent establishment in Japan 

  When the amount of money received for accepting the tender offer exceeds the amount of the portion of the Company’s capital (or for a consolidated corporation, its consolidated individual stated capital) attributable to the shares that are the basis for that payment (when the per-share purchase amount is greater than the per-share amount of capital), the amount in excess will be deemed a dividend and taxed accordingly. The amount deemed to be a dividend is subject to a withholding of 20.315% (15.315% for income tax and special income tax for reconstruction and 5% for resident tax) (There will be no special withholding of the 5% resident tax for non-residents with a permanent establishment in Japan). However, if the shareholder is considered a principal shareholder, the withholding is 20.42% (income tax and special income tax for reconstruction only). As a general rule, the amount after deducting the cost of acquiring the shares from the transfer income is subject to declared separate income taxes.

(b) For tendering shareholders who are non-residents without a permanent establishment in Japan 

  The amount deemed to be a dividend will be subject to withholding of 15.315% (income tax and special income tax for reconstruction only). If the shareholder is considered a principal shareholder, the withholding will be 20.42% (income tax and special income tax for reconstruction only).

(c) For corporate shareholders

  when the amount of money received for accepting the tender offer exceeds the amount of the portion of the Company’s capital (or for a consolidated corporation, its consolidated individual stated capital) attributable to the shares that are the basis for that payment, the amount of this excess will be deemed a dividend. As a general rule, the portion deemed to be a dividend is subject to withholding of 15.315% (income tax and special income tax for reconstruction only).

  A foreign shareholder who wishes to receive an income tax reduction or exemption for such deemed dividends pursuant to an applicable tax treaty should notify the tender offer agent by the last day of the tender offer period that he plans to submit the tax treaty application form, and then submit that form to tender offer agent by May 31, 2017.

(7) Other

(A) The tender offer is not directly or indirectly conducted within the United States or aimed at the United States, does not use the United States Postal Service or any methods or means of interstate commerce or international commerce (including but not limited to telephone, telex, facsimile, e-mail and Internet communication), and is not conducted through securities exchange facilities within the United States. Under the tender offer, shares may not be tendered using the above methods and means, through the above facilities, or from within the United States. Any purported acceptance of the tender offer resulting directly or indirectly from a violation of these restrictions will not be accepted. No Securities or other consideration is being solicited in the United States and if sent in response by a resident of the United States of America will not be accepted. No indications of interest in the tender offer are sought by this press release.

  Furthermore, the tender offer notice and other related purchase documents concerning the tender offer may not be sent or distributed to the United States, nor sent or distributed using postal or other methods within, to, or from the United States. Any tenders under the tender offer which violate the above restrictions directly or indirectly shall not be accepted.

  Every applier (including a tender offer agent for a foreign shareholder) is required to submit a certification that; (i)An applier doesn’t exist in the United States at both moments when he/her applies for the tender offer and when he/her sends application form. (ii)An applier doesn’t receive/send any information/documents regarding the tender offer in/to/from the United States. (iii)An applier neither uses the United States Postal Service or any methods or means of interstate commerce or international commerce (including but not limited to telephone, telex, facsimile, e-mail and Internet communication) nor employs any security market in the United States in order to tender their shares or to sign on/issue application form, nor behaves as an agent/assignee/mandatory those who has no discretionary power regarding tender offer (excluding the person gives every advice regarding the tender offer from the United States).

(B) The Company received an explanation from Toyota Corporation that it is Toyota Corporation’s policy at present, in principle, to tender 6,000,000 of the Company’s shares (0.76% of total number of issued shares) and hold 188,948,856 of the Company’s common shares (23.80% of the total shares issued) after the tender offer as well, after it is resolved to conduct a tender offer for the repurchase of its own shares at a meeting of the Board of Directors.

(C) The Company releases “Consolidated Financial Results for the Fiscal Year Ended March 31, 2017 ” on April 28, 2017. The summary of Financial Results is as outlined below. Though, the Company has not received audit certificate under Article 193, Paragraph 1 of 2 of the Companies Act. Please refer to news release for more detail.

The summary of “Consolidated Financial Results for the Fiscal Year Ended March 31, 2017

From April 1, 2016 to March 31, 2017

(a) Consolidated Statement of Income

 

As of March 31, 2017

Revenue

4,527,148 million yen

Cost of revenue

3,769,532 million yen

Selling, general and administrative expenses

431,192 million yen

Other income

27,721 million yen

Other expenses

23,594 million yen

Profit for the year attributable to owners of the parent company

257,619 million yen

(b) Consolidated data per one share

 

As of March 31, 2017

Profit for the year attributable to owners of the parent company per one share

326.32 yen

Dividend payment per one share

120.00 yen

(D) The Company resolved to make FUJITSU TEN LIMITED as the Company’s subsidiary by obtaining its share at a meeting of the Board of Directors on April 28, 2017.

(Reference) The number of shares held by the Company as of March 31, 2017

-Total number of issued shares (exclude own shares)    :        785,882,628 shares

-The number of own shares held by the Company         :            8,186,085 shares