Kaname Capital Calls on Cawachi Shareholders to Remove President Kawachi Shinji and Outside Director Watanabe Rinji at June AGM

A founder built a sector leader. His adopted son-in-law took the family name — but not the business acumen — and has spent twenty-four years presiding over its decline. Nineteen consecutive years of PBR below 1.0×. ¥24 billion of public shareholder value destroyed. ¥15.8 billion extracted by Shinji Kawachi to the founding family. If Cawachi cannot be better operated by present management, then it must be better owned — through a trade sale or privatization.

The full white paper is available here.
https://9b5cc9f0-1871-48d4-9379-a0f7002dcedd.usrfiles.com/ugd/9b5cc9_24f39bf8bb6c4a59a415a14a962c6148.pdf

BOSTON--(BUSINESS WIRE)--Kaname Capital today released a 102-page investor white paper on Cawachi Limited (TSE: 2664) and called on shareholders to vote FOR its proposals at the 59th Annual General Meeting on June 11, 2026 — including the removal of President Kawachi Shinji and Outside Director Watanabe Rinji as Directors. Kaname Capital further called on the resulting Board of Directors to establish an Independent Strategic Review Committee to evaluate all paths to value creation, including the viability of the current ownership structure.

A Founder's Legacy, And What Became of It

Mr. Kawachi Ryozaburo and his wife Mrs. Kawachi Taka built one of the most consequential retail businesses in postwar Japan. Starting in Tochigi in 1960 with a single pharmacy, they personally pioneered the mega-drugstore format on Japanese soil — Ryozaburo brought the concept back from a study trip to the United States in the late 1960s and spent the next three decades proving it could work in Japan. By 1990, Cawachi was the clear template for what a modern Japanese drugstore could become. The founders of Cosmos Pharmaceutical and Genky DrugStores have both publicly credited their study of Cawachi as the inspiration for their own businesses. By the time of Cawachi's 2000 IPO, the company Mr. and Mrs. Kawachi had built with their own hands was the second-largest drugstore chain in Japan, trailing only Matsumoto Kiyoshi.

This was a sector-leading company in a sector that was about to explode. The Japanese drugstore industry has more than doubled since 2014, from ¥4.9 trillion to approximately ¥10 trillion in 2025. Mr. and Mrs. Kawachi handed the next generation a leadership position in a structural growth market — perhaps the single most enviable inheritance in Japanese retail.

In 2002, they passed that inheritance to their adopted son-in-law, Mr. Kawachi Shinji — born Suzuki Shinji and adopted into the founding family as muko-yoshi (婿養子) upon his marriage. He took the family name. As the record of the last twenty-four years makes clear, he did not take the business acumen that came with it.

Over the same twenty-three years, Cosmos has grown more than fourteenfold, Tsuruha more than fivefold, MatsuKiyo Cocokara nearly fivefold, Sugi more than fourfold, and Genky from a tiny operator to roughly Cawachi's current size. Cawachi has only grown sales by 28%. This is what happens when a great company is inherited by someone who cannot run it and is then insulated from accountability for two decades by a board he selected himself.

The choice ahead is binary: dismantle the governance structure that entrenches present management, or find better ownership — whether by sale to a more capable operator, or by management taking the company private. Either scenario represents “better ownership” in our view.

Insider Gain. Outsider Pain.

The arithmetic of Mr. Kawachi Shinji's twenty-four-year tenure is simple and damning.

Outsider Pain. Since Mr. Kawachi became President in June 2002, Cawachi's market capitalization has declined from ¥86.8 billion to ¥62.8 billion — a destruction of approximately ¥24 billion of public shareholder value. Cawachi has now traded below book value for nineteen consecutive fiscal years. Its current PBR of 0.59x is the lowest in the listed peer group. Its ROE and ROIC have run below its cost of capital for the entirety of his tenure.

Insider Gain. Over the same period, the Kawachi family has extracted an estimated ¥11.4 billion in pre-tax income from the company they did not build but inherited:

• ¥4.9 billion in related-party purchases from Tokyo To Cha Oroshiuri, a Japanese tea wholesaler in Asakusa. The counterparty is run by Mr. Kawachi Shinji's elder brother — but because the brother retained the birth-family Suzuki name, a shareholder reviewing Cawachi's disclosures cannot identify the relationship without independent research. The transactions have run at approximately ¥300 million per year for sixteen consecutive years. There is no disclosed competitive tender. There is no disclosed business rationale. Store-level inspection by Kaname Capital confirms that Cawachi stores stock multiples more SKUs from this single counterparty than peer drugstores — a pattern not explained by any disclosed merchandising logic.
• ¥1.3 billion in President compensation to Mr. Kawachi personally, including ¥160 million in the most recent year — the highest in the listed Japanese drugstore peer group in absolute terms, despite running the smallest and least profitable business in that group, and structured 70% as fixed compensation versus the TSE Prime benchmark of 35%.
• ¥5.2 billion in dividends to Mr. Kawachi and other Kawachi family members.

The founding family does not trade the stock. They do not need the price to rise. Twenty-four years of suppressed valuation is, for them, a rounding error against the cash flows they extract directly. Low PBR is also potentially an asset, given that a lower market capitalization reduces the tax burden on any eventual transfer of family-held shares to the next generation. Whether this is design or merely result is, after twenty-four years, a question the board has had ample time to ask, but has shown no evidence of asking.

Last Place. Every Metric. Every Year.

Cawachi's underperformance is not a single weak data point or a recent slump. It is comprehensive and persistent. Against the listed Japanese drugstore peer group, Cawachi today ranks at or near the bottom on every measure of corporate quality the capital markets recognize:

Six dimensions. Last place in all six. There is no peer comparison on which Cawachi competes.

The mechanism of failure is also documented. Under Mr. Kawachi's tenure:

• Three consecutive medium-term plans have been missed. The current plan targeted ¥300 billion in revenue and 400+ stores by FY26; the company will deliver ¥284.5 billion and 386 stores, with operating margin falling rather than rising.
• The company has disclosed a cost of equity of 3–4% — a figure no institutional investor on Earth accepts. Global investor surveys place the required return on Japanese equity at 7.6–8.2%. The 3–4% figure is not a calculation — it is a statement that the board has not done the work.
• Capital expenditure has halved, from an average of approximately ¥9 billion per year in the five years before his appointment to approximately ¥4.5 billion per year recently — even as peers expanded their store bases by two- to five-fold.
• Special losses have recurred, driven primarily by store-asset impairments — the financial signature of a portfolio of stores that no longer earn their cost of capital.
• Cash has accumulated to ¥38.1 billion, while the company carries the lowest net leverage ratio (Net Debt / EBITDA) in the industry. The board has identified no productive use for this capital.
• ¥49.6 billion in land, the highest proportion of tangible fixed assets in the peer group, directly suppressing the company's ROIC and ROA.

The Governance System That Made This Possible

None of this happened by accident. It happened inside a governance structure built specifically to insulate Mr. Kawachi from accountability:

• A four-person board incapable of credible succession. Reduced from a post-2016 peak of eight directors to four, populated exclusively by individuals Mr. Kawachi selected, with no new director added since 2022. Mr. Kawachi is 69 years old, has been President for 24 years, and there is no disclosed successor and no disclosed succession process. A board this small, including Mr. Kawachi himself, cannot credibly operate a Nomination Committee — let alone fulfill its most important function, selecting the next President.
• The committee that selects the next President has been engineered for parity, not independence. Cawachi established Nomination and Compensation Committees in 2018 with a 2/2 insider/outsider split. In 2020 it briefly expanded to five members, achieving an independent majority for the first time. Within a year the company reversed the change, removing one independent director from the committee while she remained on the board. The 2/2 parity has been preserved every year since. As the board has contracted to four, Mr. Kawachi now occupies a seat on the committee that nominates him by arithmetic necessity.
• An “outside” director with no record of independence. Outside Director Watanabe Rinji, a former institutional investor with deep capital-markets credentials, is entering his 10th year in office and has chaired the Nomination and Compensation Committee since 2021. Yet, over the past decade, Cawachi's PBR has remained between 0.4x and 0.8x. The capital-markets expertise that should have produced governance has produced silence. At the 2025 Annual General Meeting, Kaname Capital voted against Mr. Watanabe's reappointment.
• The President “chairs” the board that oversees him. There is no independent chair. The Nomination and Compensation Committees are 50% insiders, including Mr. Kawachi himself.
• A two-year director term — the only company in the listed Japanese drugstore peer group with a term longer than one year. After Kaname filed a shareholder proposal in April 2026 to shorten the term to one year, the company belatedly proposed the same change itself.

This is not a public-company governance system. It is a private-company governance system, operated with public capital, for the benefit of a single family.

The June 11 Vote: A Question for Every Non-Family Shareholder

Kaname Capital has filed two shareholder proposals for the 59th Annual General Meeting on June 11, 2026. The first proposes the removal of Kawachi Shinji and Watanabe Rinji as Directors. The second proposes shortening the term of directors from two years to one — a change Cawachi itself has now conceded is necessary, and which we have left on the ballot so that shareholders have a clear, low-cost way to register their support for the direction of governance reform.

We urge ISS, Glass Lewis, and all proxy advisory services to recommend FOR both proposals.

Nobody Else Has Been Well Served

An estimated ¥11.4 billion has flowed through President Kawachi to the founding family via compensation, dividends, and related-party transactions during his tenure. By contrast, we cannot identify another constituency that has benefited meaningfully from the status quo:

• Minority shareholders: approximately ¥24 billion in value has been destroyed via a lower market capitalization.
• Employees: the company has fallen from second in the industry to outside the top ten.
• Suppliers: they have watched the company accumulate cash it has been unable to deploy productively.
• Communities in Tochigi: they helped build this business alongside the founders and have watched its decline.
• The next generation of the Kawachi family: on a generational view, they risk inheriting a wasting asset rather than the leadership position the founders created.

The June 11 vote is the one moment in the calendar at which the constituencies who have not been served by this structure can be heard. It is not principally about whether removal of Kawachi and Watanabe passes. It is about whether non-family Cawachi shareholders register, on the public record, that the current arrangement has failed everyone outside the family.

We are asking every Cawachi shareholder — institutional, foreign, individual — to vote, and to vote FOR both proposals. Twenty-four years of underperformance has been permitted, in part, by shareholders who did not show up. On June 11, 2026, please show up. We look forward to hearing your voice.

What Good Governance at Cawachi Looks Like

We part with a short list of easy wins that a credible board at Cawachi would implement today:

• Establish an Independent Strategic Review Committee — staffed by external advisors and independent specialists — with a full mandate to evaluate the continued viability of the current ownership and operating structure, succession and compensation reform, and capital allocation, including a tender offer for the shares held by the Kawachi family.
• Commit to a DOE of 5% — implying a dividend per share of approximately ¥260, against the company's current ¥100 — as a credible signal that the board takes the cost of equity seriously.
• Independently review all related-party transactions, beginning with the ¥4.9 billion of cumulative purchases from the tea wholesaler controlled by the President's brother.

This is not a wish list. It is the floor for what a board of a TSE Prime company carrying ¥38.1 billion of cash, trading at 0.59x book, and reporting a cost of equity of 3–4% should already be doing. The fact that none of them is in motion is itself the case for change.

A Final Word

Mr. Kawachi Ryozaburo and Mrs. Kawachi Taka built something extraordinary. They handed it on in good faith. The man who received their name has not honored their legacy — he has spent twenty-four years presiding over its decline, while extracting approximately ¥11 billion for himself and his family.

The Kawachi family legacy, and the shareholders, employees, and suppliers of Cawachi, deserve better than this.

Cawachi can be a great company again — but not under its current leadership.

The time for change is now. Better operatorship or better ownership. The status quo is simply unacceptable.

Cawachi shareholders, current and former employees, suppliers, and other stakeholders with information they wish to share are invited to contact us in confidence at contact@kanamecapital.com.

Media Contact:
contact@kanamecapital.com
+1-617-221-3584