Japan’s Toshiba on Friday outlined plans to split into three independent companies seeking a radical change after years of scandal to please active shareholders.
The move echoes a shift by fellow industrial conglomerate General Electric and will see Toshiba spin off core businesses — its energy and infrastructure divisions will be housed in one company, while its appliance and storage businesses will be the backbone of another.
The third will manage Toshiba’s stake in flash-memory chip company Kioxia and other assets.
Sources with knowledge of the matter said the plan – arising out of a five-month strategic review conducted in the aftermath of a highly damaging corporate governance scandal – is partly aimed at encouraging active shareholders to exit.
The overhaul was announced after the market closed in Japan. The company’s Frankfurt-listed shares fell 4 percent at open Friday, highlighting investors’ disappointment with the plan.
A break-up would drive a call by some shareholders to take Toshiba private. Its Strategic Review Committee said, however, that the option had raised concerns internally about its impact on the business and retention of employees.
It said private equity firms had also expressed concerns about completing the deal due to potential conflict with Japan’s national security law and potential opposition from anti-trust regulators.
“After much discussion, we came to the conclusion that this strategic restructuring was the best option,” Chief Executive Satoshi Tsunakawa said at a news conference.
He said Toshiba, which expects to complete the overhaul in two years, would have opted to split regardless of the presence of active shareholders and that Japan’s powerful trade ministry had no objection to the plan.
A portfolio manager at an activist fund with shares in Toshiba said the plan was disappointing and is unlikely to be voted on at the Japanese company’s extraordinary general meeting (EGM), which is planned to be held until next March.
“The workers now have two options – you can sell and walk away and come back in two years’ time or you can buy more shares and fight this thing at the EGM. Thinking what to do,” he said. The portfolio manager declined to be identified.
returns to shareholders
As part of the overhaul, Toshiba aims to return approximately JPY 100 billion (about Rs 6,530 crore) to shareholders over the next two fiscal years.
It also said that it intends to “monetise” its shares in Kioxia, thereby returning full net income to shareholders as quickly as possible. But it did not elaborate on whether this means it is still interested in an IPO or is looking at other options.
Other assets that will remain with Toshiba include its stake in printing and retail information systems maker Toshiba Tech Corp.
Ahead of the formal announcement of the plan, shareholder sources said some Toshiba investors did not agree that the break-up would lead to value creation.
“If the valuation of a highly competitive business is hindered by other businesses, it makes sense to split,” said Fumio Matsumoto, chief strategist at Okasan Securities.
“But if there is no such business, the break-up just creates three weak mid-sized companies.”
The once storied 146-year-old group has gone from crisis to crisis since an accounting scandal in 2015. Two years later, it secured a cash injection of $5.4 billion (about Rs 40,190 crore) from over 30 foreign investors, helping it survive. Activist shareholders, including Eliot Management, Third Point and Farallon, were delisted.
Tensions between Toshiba management and foreign shareholders have been in the limelight since then, and in June, an explosive shareholder-commission investigation concluded that Toshiba had tried to prevent investors from gaining influence at last year’s shareholders meeting, Japan’s Ministry of Trade. colluded with.
Earlier on Friday, Toshiba released a separately commissioned report that found executives, including its former CEO, had behaved unethically but not illegally.
It concluded that Toshiba was too reliant on the trade ministry, adding that the problems were also due to “excessive vigilance towards foreign investment funds” and “lack of desire to develop a sound relationship with them”.
Toshiba nearly doubled its second-quarter operating profit to JPY 30.4 billion (about Rs 1,985 crore) after recovering from the slowdown due to the COVID-19 pandemic.
© Thomson Reuters 2021