KDDI : Notice Regarding Repurchase through Tender Offer

July 28,2023

KDDI Corporation

At the board of directors' meeting held today, as stated below, as a specific method of repurchasing treasury shares pursuant to the provisions of Article 156 of the Companies Act (Act No. 86, 2005, including subsequent revisions, the "Companies Act") as applied mutatis mutandis pursuant to the provisions of Article 165, Paragraph 3 of the Companies Act and the Company's articles of incorporation, the Company resolved to conduct a tender offer of treasury shares (the "Tender Offer").

1. Objective of the Tender Offer

In order to realize a desirable future society while responding to changes in our business environment, the Company has created "KDDI VISION 2030: The creation of a society in which anyone can make their dreams a reality, by enhancing the power to connect," and aims to become by 2030 "a platformer supporting society," namely, a presence that can provide added value to all industries and life situations.
In the Mid-Term Management Strategy for the fiscal year ending in March 2023 to March 2025, with a view to 2030, the Company will be promoting "business transformation centered on 5G," and aims to strengthen both sustainable profit growth and shareholder return. From this perspective, in addition to turnaround in communications ARPU revenue and profit growth centered on focus areas, the Company will make capital expenditures and strategic business investments in 5G and its focus areas, continue stable dividends in the form of shareholder returns under its financial policy of a dividend payout ratio of over 40%, and conduct share repurchases in a flexible manner in consideration of its investment for growth status.
Furthermore, the Company's basic policy is to pay dividends from surplus twice a year, an interim dividend, as well as a year-end dividend. For the fiscal year ended March 2023, the Company paid an interim dividend of 65 yen per share and a year-end dividend of 70 yen per share, resulting in an annual dividend of 135 yen per share (consolidated dividend payout ratio: 43.5%).
Additionally, pursuant to Article 165, Paragraph 2 of the Companies Act, the Company provides in its articles of incorporation that it may repurchase its treasury shares by a resolution of the board of directors, and has repurchased its ordinary shares as follows up to now, in order to enhance profit returns to its shareholders:

Date of resolution	Cumulative acquisition period	Cumulative number of acquired shares (Note)	Cumulative total acquisition cost
Annual shareholders' meeting held on June 25, 2002	July 19, 2002 - July 31, 2002	24,000 shares (14,400,000 shares)	9,124,040,000 yen
Annual shareholders' meeting held on June 24, 2003	September 22, 2003	1,800 shares (1,080,000 shares)	1,075,600,000 yen
Board of directors' meeting held on October 28, 2004	October 29, 2004 - February 15, 2005	44,691 shares (26,814,600 shares)	24,180,593,000 yen
Board of directors' meeting held on September 28, 2006	September 29, 2006 - October 31, 2006	35,000 shares (21,000,000 shares)	25,758,500,000 yen
Board of directors' meeting held on January 25, 2007	January 26, 2007 - March 23, 2007	22,258 shares (13,354,800 shares)	19,999,835,000 yen
Board of directors' meeting held on October 22, 2010	October 25, 2010 - January 18, 2011	208,271 shares (124,962,600 shares)	99,999,873,000 yen
Board of directors' meeting held on November 28, 2011	November 29, 2011	424,126 shares (254,475,600 shares)	220,969,646,000 yen
Board of directors' meeting held on February 9, 2016	February 10, 2016 - February 23, 2016	16,584,700 shares	49,999,948,250 yen
Board of directors' meeting held on May 12, 2016	May 13, 2016 - September 13, 2016	31,650,800 shares	99,999,744,600 yen
Board of directors' meeting held on May 11, 2017	May 12, 2017 - September 15, 2017	33,526,600 shares	99,999,394,503 yen
Board of directors' meeting held on January 31, 2018	February 1, 2018 - March 23, 2018	18,953,100 shares	49,999,824,150 yen
Board of directors' meeting held on May 10, 2018	May 11, 2018 - March 7, 2019	55,039,300 shares	149,999,888,350 yen
Board of directors' meeting held on May 15, 2019	May 16, 2019 - December 23, 2019	51,194,000 shares	149,999,385,150 yen
Board of directors' meeting held on October 30, 2020	November 2, 2020 - May 31, 2021	61,259,100 shares	199,999,952,655 yen
Board of directors' meeting held on May 14, 2021	June 1, 2021 - May 12, 2022	54,059,000 shares	199,999,874,416 yen
Board of directors' meeting held on May 13, 2022	June 1, 2022 - March 23, 2023	47,864,700 shares	199,999,972,200 yen

The Company has continued to repurchase treasury shares. However, as a result of the Company aiming for further strengthening shareholder returns and conducting deliberations from early April to early May of 2023, on the increase of its acquisition cost for repurchasing shares, the board of directors resolved during its meeting held on May 11, 2023 to repurchase treasury shares from June 1, 2023 to May 31, 2024, with the upper limit of total shares being 92,000,000 shares and the upper limit of the total acquisition cost being 300 billion yen (the "Share Repurchase Based on BOD Resolution of May 11, 2023").
On the other hand, on April 10, 2023, Toyota Motor Corporation ("Toyota Motor"), the Company's third shareholder (the number of shares held as of the end of March 2023 (when the Company could ascertain its shareholding status immediately before April 10, 2023) was 316,794,400 shares (holding ratio (Note 1): 14.69%)) informed the Company of its intention to sell a portion of the Company's ordinary shares that it currently holds (the "Shares Offered for Sale").

Toyota Motors entered the communications business in the 1980s, during the trend towards liberalization of the communications sector, and became the Company's major shareholder after the launch of the Company in October 2000. From 2002 onward, the Company and Toyota Motors collaborated on Toyota Motors' connected service (Note 2), among others. While the "tsunagaru-ka (connectivity)" of automobiles to the internet progressed, the Company and Toyota Motors accelerated measures to provide safety and comfort through the integration of automobiles and communications.
An example of this is the joint development of a global communications platform that does not depend on conventional roaming services, etc., in order to secure high quality and stable global communications between in-vehicle communication systems and the cloud, which has been promoted since 2016. After the announcement of the strengthening of the business and capital alliance in October 2020, the Company disposed of 18,301,600 treasury shares to Toyota Motors (the number of shares held as of the end of September 2020 (when the Company could ascertain its shareholding status immediately before January 2021) was 298,492,800 shares (holding ratio (Note 3): 12.98%)).

According to Toyota Motors, Toyota Motors is currently engaged in becoming a mobility company, in order to win against strong competition and to realize mid- to long-term growth. It is focused on the effective use of assets and the reduction of cross-shareholding, as a large number of investments with themes of "electrification," "intelligence," and "diversification" will be necessary.
Under such circumstances, Toyota Motors deliberated on optimal capital relationship with the Company, and offered the sale of a portion of the Company shares.
In response, separate from the deliberations on the expansion of acquisition costs for the treasury shares above, the Company deliberated on the response measures for the offer of a sale of a portion of the Company shares from Toyota Motors over the course of May 17, 2023.
Specifically, the Company decided that it would be appropriate to repurchase shares from Toyota Motors in light of the effects on the market price of the Company's shares when Shares Offered for Sale are released into the market considering the fact that since Toyota Motors holds 316,794,400 ordinary shares of the Company (as of the end of March 2023), if it intends to sell those ordinary shares of the Company, the number to be sold is expected to be reasonably large even if the sale is only for a part of those shares held. While previous share repurchases were made mainly through market purchases, considering the fact that on May 11, 2023, the board of directors decided to increase the amount of share repurchases, and to repurchase a total of 92,000,000 shares with the ceiling of the total amount of share repurchases of 300 billion yen during the period from June 1, 2023 to May 31, 2024, the Company decided that it would be desirable to also purchase treasury shares partly from the market even in the case of repurchasing shares from Toyota Motors. Accordingly, the Company specifically deliberated over the purchase of treasury shares from Toyota Motors, while purchasing treasury shares from the market, as a part of the Share Repurchase Based on BOD Resolution of May 11, 2023.
As a result of deliberations, and in light of the number of shares held by Toyota Motors and the fact that share repurchases in the market for at least approximately 50 billion yen were made every time a resolution for the repurchase of treasury shares was passed from the fiscal year ended March 2016 onward, the Company concluded that it would be appropriate to repurchase shares of around 250 billion yen from Toyota Motors, while purchasing treasury shares of around 50 billion yen from the market, from the 300 billion yen total set for the Share Repurchase Based on the BOD Resolution of May 11, 2023.
Furthermore, the Company concluded that a tender offer would be appropriate as the specific method when repurchasing shares from Toyota Motors in light of the following factors: (i) equality among the shareholders; (ii) transparency of the transaction; (iii) since it would be possible to purchase ordinary shares of the Company at a price discounted to a certain extent from the market price, if a purchase is indeed made at that discounted price, a tender by shareholders other than those of Toyota Motors is expected to be limited from the perspective of economic rationality as a result of a divergence from the price at which the shares are sold on the market, ensuring that the Company would repurchase all of Toyota Motors' Shares Offered for Sale, and therefore, control over outflow of Company assets outside the Company; and (iv) securing the opportunity to tender shares in light of the trend in market price after providing shareholders other than Toyota Motors with a certain deliberation period.
The Company plans to allocate all funds for the Tender Offer from its own capital. According to the Financial Statements Summary for the Year ended March 31, 2023 [IFRS] (consolidated) that the Company submitted on May 11, 2023 (the "Financial Statements Summary for the Year ended March 31, 2023"), the Company's consolidated on-hand liquidity (cash and cash equivalents) as of the end of March 2023 was approximately 480.3 billion yen (liquidity on hand ratio: 1.0 month) (Note 4). Even taking into consideration that it would require approximately 250 billion yen in order to conduct the Tender Offer, the Company's consolidated on-hand liquidity is still expected to be around 230.3 billion yen (on-hand liquidity ratio: 0.5 month). In light of the fact that the funds required for the Tender Offer will be necessary on and after the date of commencement of settlement for the Tender Offer (scheduled for September 20, 2023), in addition to the Company's consolidated on-hand liquidity as of the last day of March 2023, since cashflow generated from the Company's business is expected to increase (consolidated cashflow from business activities for the fiscal year ended March 2023 was 1,078.9 billion yen), the Company concluded on May 17, 2023 that it will be able to secure sufficient funds for its business operations, and that even if it repurchases treasury shares of considerable value, there will be little effect on the Company's financial situation and distribution policy.

In light of the above deliberations, on May 18, 2023, the Company informed Toyota Motors that with respect to the Shares Offered for Sale, it wishes to repurchase the Company's ordinary shares worth approximately 250 billion yen as treasury shares, and proposed that it repurchase such shares by way of tender offer. On May 31, 2023, Toyota Motors indicated its intention to deliberate on the Company's proposal in a forward looking manner.
In deciding the purchase price of the Tender Offer (the "Tender Offer Price"), the Company took into consideration the fact that the Company's ordinary shares are listed on financial instruments exchanges and this is often conducted by market purchases through financial instruments exchanges because listed companies are able to purchase treasury shares in a flexible manner in line with share price levels formed based on market supply and demand. Therefore, the Company assessed the clarity and objectivity of the base price of the purchase and decided that the base price should be the market price of the Company's ordinary shares. Furthermore, in order to respect the interests of shareholders who choose not to tender in the Tender Offer and continue to hold the Company's ordinary shares, the Company decided that it would be desirable to make the purchases at a price that is discounted to a certain extent from the market price of the Company's ordinary shares in order to prevent assets from flowing outside the Company to the extent possible.
The Company analyzed 40 tender offer cases for treasury shares which were resolved on or after January 1, 2021 and for which the tender offer period ended before the end of May 2023 in order to enable the Company to grasp the range of the discount rate for a certain number of recent similar projects. Out of the 40 confirmed tender offer cases, 33 cases were conducted using the discount rate (the "Cases"),. Among the Cases, the discount rate of approximately 10% (9% to 10%) had the most cases with a total of 21 and the Company decided that even taking into consideration volatility in the share price of the Company's ordinary shares, it would still be appropriate to set the discount rate at 10%. Furthermore, with respect to the price of the Company's ordinary shares which is the basis of the discount, the Company considered that a certain point in time as the base price, adopting a levelled value of the average share price over a certain period of time, would enable the elimination of special factors such as temporary share price fluctuations, and secure objectivity and reasonableness as the basis of calculation. On the other hand, the Company considered that the Company's latest performance would be more fully reflected in the share price if a more recent share price is used. Accordingly, the Company determined on July 20, 2023 that, instead of the simple average value of the closing price of the Company's ordinary shares on the Tokyo Stock Exchange Prime Market for the past 3 months and 6 months prior to the business day immediately preceding the date of the board of directors' resolution, it would be more appropriate to use, as the basis for the calculation, a shorter period of time; namely, the simple average value of the closing price of the Company's ordinary shares on the Tokyo Stock Exchange Prime Market for the past 1 month prior to the business day immediately preceding the date of the board of directors' resolution.
Subsequently, on July 21, 2023, in light of the trend in the share price of the Company's ordinary shares, the Company proposed to Toyota Motors to make the Tender Offer Price the price calculated by applying the 10% discount rate to the simple average value of the closing price of the Company's ordinary shares on the Tokyo Stock Exchange Prime Market for the past 1 month before July 27, 2023, the business day immediately preceding July 28, 2023, the date of the board of directors' meeting to determine whether to conduct the Tender Offer. On July 27, 2023, Toyota Motors (as of the date of submission of this notice, holding 316,794,400 shares (Holding Ratio (Note 5): 14.68 %) responded by stating that it would tender for the Tender Offer, for the number of shares obtained by dividing 250 billion yen by the Tender Offer Price and rounding off any fractions falling short of 100 shares (the "Intended Tendering Shares"), if the Company conducts the Tender Offer under such terms.

Considering the above, at the board of directors' meeting held on July 28, 2023, the Company resolved: to repurchase treasury shares pursuant to the provisions of Article 156, Paragraph 1 of the Companies Act as applied mutatis mutandis pursuant to the provisions of Article 165, Paragraph 3 of the Companies Act and the Company's articles of incorporation; to conduct the Tender Offer as the specific method thereof; and to set the Tender Offer Price at 3,900 yen, which will be calculated by applying a 10% discount rate to 4,333 yen (rounded to the nearest yen; hereinafter the same for calculating the simple average value of the closing price), which is the simple average value of the closing price of the Company's ordinary shares on the Tokyo Stock Exchange Prime Market for the past 1 month by July 27, 2023, the business day immediately preceding July 28, 2023, the date of the board of directors' meeting at which a resolution was made to conduct the Tender Offer (rounded to the nearest yen; hereinafter the same for calculating the Tender Offer Price). It was decided that the number of share certificates planned for purchase in the Tender Offer would be 64,102,500 shares, which is the number of shares obtained by the total acquisition cost of 250 billion yen divided by the Tender Offer Price of 3,900 yen (any fractions falling short of 100 shares shall be rounded off), as well as to conduct a market purchases on the Tokyo Stock Exchange Prime Market within the total acquisition cost obtained by subtracting the total acquisition cost of the Company's ordinary shares repurchased by the Tender Offer from the total acquisition cost (300 billion yen) for the Share Repurchase Based on the BOD Resolution of May 11, 2023, during the period from the business day following the day of commencement of settlement for the Tender Offer, namely, September 21 2023, to May 31, 2024.
The Company's board of directors is composed of twelve directors. Mr. Keiji Yamamoto, the Company's director, concurrently holds the position of Toyota Motors' Senior Fellow; and in order to eliminate arbitrariness in the Company's decision making processes with respect to deliberating over and making decisions on the Tender Offer, he did not participate in any deliberations or resolutions concerning the Tender Offer proposal during the board of directors' meeting held on July 28, 2023 or in any discussions and negotiations with Toyota Motors in the capacity of the Company.
The Tender Offer Price of 3,900 yen is as follows: (i) 4,314 yen, the closing price of the Company's ordinary shares on the Tokyo Stock Exchange Prime Market on July 27, 2023, the business day immediately preceding July 28, 2023, the date of the board of directors' meeting at which a resolution was made to conduct the Tender Offer, minus 9.60% discount (rounded to the second decimal place; hereinafter the same with respect to the calculation of the discount); (ii) 4,333 yen, the simple average value of the closing price of the Company's ordinary shares for the past 1 month before July 27, 2023 (rounded to the nearest yen; hereinafter the same with respect to the calculation of the simple average value of the closing price) minus 9.99% discount; (iii) 4,379 yen, the simple average value of the closing price of the Company's ordinary shares for the past 3 months before July 27, 2023 minus 10.94% discount; and (iv) 4,214 yen, the simple average value of the closing price of the Company's ordinary shares for the past 6 months before July 27, 2023 minus 7.45% discount.
In addition, the Company plans to conduct a market purchase on the Tokyo Stock Exchange Prime Market, within the total acquisition cost obtained by subtracting the total acquisition cost of the Company's ordinary shares repurchased by the Tender Offer from the total acquisition cost (300 billion yen) for the share repurchase based on the BOD resolution of May 11, 2023, during the period from the business day following the commencement date of settlement for the Tender Offer, namely, September 21 2023, to May 31, 2024. From the viewpoint of economic reasonableness due to the divergence from the price traded on the market, it was considered that the tender by shareholders other than Toyota Motors towards the Tender Offer conducted at the price discounted from the market price will be restrictive. Therefore, after the mutual consultation with Toyota Motors, the number of share certificates planned for purchase in the Tender Offer is made the same as the number of shares of the Intended Tendering Shares. The Intended Tendering Shares is 64,102,500 shares, which will be obtained by dividing 250 billion yen by 3,900 yen and rounding down to the nearest 100 shares.
If the total number of share certificates tendered in the Tender Offer exceeds the number of share certificates planned for purchase, the purchase will be made using a pro rata method, and the Company will repurchase part of the Intended Tendering Shares. On July 27, 2023, the Company received an answer from Toyota Motors to the effect that if as a result of the total number of share certificates tendered in the Tender Offer exceeding the number of share certificates planned for purchase, a purchase is made using a pro rata method, and not all 64,102,500 shares of the Intended Tendering Shares are purchased, it will continue to hold the Company's ordinary shares that the Company was unable to repurchase.
In addition, on July 27, 2023, the Company and Toyota Motors concluded that Toyota Motors will remain as the major shareholder of the Company, and that their amicable business relationship will continue, and the Company received an answer from Toyota Motors to the effect that currently, it will continue to hold 252,691,900 shares of the Company's ordinary shares that Toyota Motors holds other than the Intended Tendering Shares held by Toyota Motors (holding ratio: 11.71%). With regard to the strengthening of business capital alliance with Toyota Motors announced in October 2020, both companies are steadily progressing research and development, and are engaged in order to incorporate the results thereof into development of next-generation global communication platform, and the Company and Toyota Motors confirmed to continue to cooperate and promote for the purpose of enhancement of corporate values of both companies, and for further contribution towards the society.
The plan for the treatment of the treasury shares that will be repurchased through the Tender Offer and market purchases made after the Tender Offer has not been decided at present.

2. Details of the resolution of the board of directors on the acquisition of treasury shares (disclosed on May 11, 2023)

3. Tender Offer outline