Brandes' View on Hibiya Engineering's Response to the Shareholder Proposal

SAN DIEGO, May 29 /PRNewswire/ -- Brandes Investment Partners, L.P.
("Brandes") publicly disclosed on April 29th, 2008, that it submitted to
Hibiya Engineering, Ltd. (the "Company"), an engineering company based in
Japan and listed on the Tokyo Stock Exchange, a resolution (the "Resolution")
to be submitted for shareholder approval at the Company's upcoming annual
meeting of shareholders. The Resolution calls for the Company's Board of
Directors to authorize: 1) a one-time dividend of 32.5 yen per share of common
stock (including the interim dividend of 7.5 yen per share, the annual
dividend, if approved, shall be 40 yen per share), payable by September 30th,
2008, and 2) a share buyback program of up to 1.5 million shares for a maximum
of 1.5 billion yen. A copy of the Resolution is available at the Brandes
website at http://www.brandes.com/Inv/PressReviews.htm
On May 15th, 2008, the Company issued a public statement opposing the
Resolution due to the belief that it violates the Company's basic policy of
distributing stable 'appropriate shareholder returns' based on securing
'necessary and ample internal reserves.' The statement implies that the
Resolution is not 'appropriate' because the size of the dividend and share
buyback proposed will be 3.3x consolidated net income, while the current
Company plan will be 1.3x. While the payout ratio may appear high, the
Resolution is not requesting for the commitment for a high long-term payout
ratio, but rather a commitment to reduce what Brandes believes is substantial
excess capital at the Company. The intent of the Resolution is for the
Company to acknowledge its 'excess capital' and commit to gradually reducing
it through means that the Company feels most appropriate. Therefore, Brandes
believes that payout ratios are not the most relevant metric to measure
whether the proposal is 'appropriate.'
In addition, Brandes believes that the Company has failed to specifically
quantify what it refers to as 'necessary and ample internal reserves.' As of
March 31st, 2008, the Company had approximately 41 billion yen in financial
assets, which is significantly higher than the Company's current market value
of nearly 30 billion yen. The Company has stated that of the 41 billion yen
in financial assets, 31 billion yen is necessary for working capital and
business/cross shareholding investments, while the remaining 10 billion yen is
earmarked for increasing strategic/cross shareholding investments to acquire
profitable projects and for future investments in new businesses to foster
growth. Brandes believes that reserving 10 billion yen for 'future
investments' is not in the best interest of shareholders, and notes that the
Company has held well in excess of this amount in cash for a number of years.
The Resolution, if approved, will only result in an incremental return to
shareholders of approximately 2 billion yen, which, considering the historical
average annual free cash flow generation (defined as net income + depreciation
-- capex) of about 1 billion yen and the 10 billion yen earmarked for future
potential investments, will not compromise what Brandes believes is 'necessary
and ample reserves.'
Additionally, the current management plan is targeting a long-term ROE of
a mere 4%, while the Company itself believes its cost of capital is only 5%.
Even assuming 5% is the correct assumption for the Company's cost of capital
(which Brandes believes is in fact higher), this implies that the Company will
continue to destroy value by deploying the excess capital in below cost of
capital projects. While Brandes supports necessary investments to improve the
long-term value of the Company, it is essential that any such investment is
only made if it is reasonably expected to generate rates of return above its
cost of capital.
Lastly, the Company states that due to the highly seasonal 4th quarter
concentrated orders of the construction industry, it is not prudent to commit
to annual share buybacks at the start of the fiscal year. Brandes does not
dispute the seasonality of orders, but believes that the Resolution does not
reduce management flexibility in executing share buybacks in any way, given
its modest size relative to the Company's more than ample cash reserves.
While Brandes is disappointed that the Company does not support its
Resolution, it commends the Company for putting the Resolution to a vote at
the upcoming annual shareholders meeting. Brandes also acknowledges that the
Company is taking small positive steps in the right direction by announcing a
memorial dividend of 10 yen per share for FY3/2008, and a share buyback
program of up to 1 million shares for a maximum of 1.0 billion yen during the
period of June 30th, 2008 -- November 10th, 2008. Although the Company only
managed to execute less than one-third of the share buyback program it
announced in FY3/2008, Brandes expects that the company will fully execute the
recently announced share buyback program for this fiscal year.
Regardless of the outcome of the vote on the Resolution, Brandes believes
that all the Company's shareholders will have benefitted from this process.
Brandes will continue to monitor the Company's capital structure and the
investments that it makes, and will consider making or supporting similar
proposals in future years designed to enhance the long-term value of the
Company.
On behalf of its investment advisory clients, Brandes currently holds in
excess of 9% of the Company's shares. This represents an ownership position
built since 1998.
Brandes is a U.S. registered investment advisor. Located at 11988 El
Camino Real, Suite 500, San Diego, California, 92130. Brandes managed
approximately US$93.4 billion on behalf of institutional and individual
investors, as of March 31st, 2008.
The above information is based on the following conditions. This press
release is not intended to advocate the purchase or sale of the Company's
stock. Also, the press release is not based on the intention that Brandes,
its related parties and other third parties solicit proxies for the Company's
Annual General Meeting ("AGM").
This press release is based on information currently available as of the
date of this announcement. Brandes has acted in full caution and on best
effort, but cannot guarantee that the information is correct. In addition,
the Resolution does not guarantee a specific outcome for the votes at the AGM.
Brandes may, depending on the situation, change or revoke the Resolution.
This press release is not intended to influence the share price of the
Company. Brandes does not guarantee any reaction by the market in regards to
this press release, the Resolution or the Company's response to the Resolution
and press release. This press release is solely intended to explain the
background and rationale for submitting the Resolution.
SOURCE Brandes Investment Partners, L.P.

Ray Lewis of Brandes Investment Partners, L.P., +1-858-523-3588,
PublicRelations@brandes.com