Toshiba, Japan’s oldest and largest conglomerate, is set to close its 74-year history in the stock market, as a group of investors has acquired a majority stake. The company has announced that a consortium led by the private equity firm Japan Industrial Partners (JIP) has purchased 78.65% of its shares. The deal allows the group to take Toshiba private for a complete deal valued at $14 billion (£11.4 billion).
Toshiba’s roots date back to 1875 when it began as a manufacturer of telegraph equipment. Over the years, it expanded from household electronics to nuclear power plants, becoming a symbol of Japan’s economic recovery and technological prowess after World War II. However, the company, based in Tokyo, has faced several significant setbacks in recent years.
Gerard Fasol, CEO of Business Advisory firm Eurotechnology Japan, said, “Toshiba’s downfall is the result of the most inadequate corporate governance in corporate history.” In 2015, Toshiba admitted to overstating its profits by more than $1 billion over seven years and paid a record fine of 7.37 billion yen ($47 million; £38 million), the largest-ever penalty in Japan’s corporate history at the time.
Two years later, it revealed substantial losses in its American nuclear energy business, Westinghouse Electric, amounting to a write-down of 700 billion yen. To stave off bankruptcy, in 2018, Toshiba sold its profitable memory chip business, which was seen as the jewel in the company’s portfolio, to a consortium led by the private equity firm Bain Capital.
Exploring Multiple Takeover Offers
Since then, Toshiba has been the subject of multiple takeover offers, including one from the UK’s private equity group CVC Capital Partners in 2021, which it rejected. In the same year, the company reached an agreement with the Japanese government to block foreign investors’ attempts to influence its interests.
Following that, the firm announced plans to split the company into three separate businesses. The project was under scrutiny for months, and the board ultimately split the company into two units before implementing the new break-up plan. Before proceeding with the new break-up plan, the company’s board had been considering an offer to take the company private by the consortium led by JIP.
Mark Stein, Chief Analyst at Tokyo-based research and advisory firm ITR Corporation, said, “The company needs to reinvent itself in earnest, especially after dismantling much of its core business units, notably its semiconductor group.”
He added that Toshiba was one of the most famous names to join the trend of privatization among Japanese firms, allowing shareholders to be “accountable.” Toshiba Corporation of Japan said on Monday it had drawn up plans to sell most of its stake in flash memory chips from Kioxia Holdings and return most of the net proceeds to the shareholders.
Shares in Toshiba jumped on the news, and trading in Tokyo was halted three times on Monday as they rose 5% in the session. It did not give details of the proposed sale of the loss-making operations but sources familiar with the matter said it wants to gradually unload the stake when the world’s second-largest flash memory chip company lists on the Tokyo Stock Exchange later this year.
Japanese Media Reports on Kioxia
Japanese media has said Kioxia could be valued at around $32 billion when it goes public. Toshiba sold the previous glimmer memory chips unit to a consortium driven by U.S. confidential value firm Bain Capital in 2018 for $18 billion and purchased 40.2% of the business as a feature of the arrangement.
Toshiba also said it has received two separate proposals for new directors to its board, which it opposes. One, from its largest shareholder with a 15% stake, Singapore-based Effissimo Capital Management, demands it elects two outsiders, including Effissimo’s co-founder and two others, to tackle governance issues.
Effissimo: A Singapore-Based Investment Fund Making Waves in the Financial World
Effissimo, a fund set up in Singapore by former colleagues of activist investor Yoshiaki Murakami, who is also a former partner of the fund, this year disclosed previously undisclosed dealings with Toshiba, alleging a lack of progress in improving governance since a major accounting scandal in 2015. The second, 3D Investment Partners, is seeking to nominate two candidates it wants to see added to the board, it said in response to the proposals.
In response to both proposals, Toshiba said the board it nominated includes people with deep knowledge of various fields and ensures suitable diversity. During the 2017 crisis caused by the bankruptcy of its U.S. nuclear power unit, Toshiba faced activist pressure after foreign hedge funds became involved following a 600 billion yen ($5.6 billion) stock market flotation, which resulted from the sale of a 70% stake by Toshiba. – Japanese.
Toshiba’s Complex Relationships
Toshiba has stated that its complex relationships with various stakeholders, including shareholders with diverse opinions, have hindered its business activities. A strong shareholder base will help the company move forward with its long-term strategy, focusing on digital services that yield higher margins.
Toshiba intends to keep CEO Satoshi Tsunakawa in place. Trios Landis, a shareholder, has expressed hope that the company’s governance will improve with the possibility of new management and restructuring. However, for success, management should be prepared to engage with incoming shareholders and tell a better story to the capital market.
The Evolution of Olympus’ Camera Business
While Olympus’ camera business and Sony Group’s laptop computer business, among other corporate carve-outs and spin-offs, have been included in the corporate carve-out and spin-off trend in Japan, JIP has remained involved. Since 2015, Toshiba has been embroiled in accounting scandals, resulting in significant losses and its removal from stock listings. Corporate governance scandals have been a recurring issue.
JIP’s consortium includes 20 Japanese companies, led by Sharp maker Rohm, financial services firm Orix, and Chubu Electric Power. This deal will be Japan’s largest M&A transaction this year, according to LSEG’s data. Japan is the only major market in Asia to see an increase in consolidation and acquisitions so far this year.
Toshiba’s Stance on the Consortium’s Acquisition
In March, Toshiba stated that if the consortium fails to acquire at least 66.7% of the remaining shares, the tender offer will be withdrawn. The price is set at ¥4,620 per share and has a 30-business day term, which is considerably higher than the closing price of ¥4,584 on Monday. Toshiba has reported a net loss of ¥25.3 billion in the first quarter due to a decrease in demand for Kioxia, the chip firm in which it has maintained a 40% stake.
Two years ago, a significant acquisition offer from private equity fund CVC Capital Partners cast doubts on the group’s future. After rejecting CVC’s proposal, plans were made to spin off the company and discontinue its devices segment, facing strong opposition from some investors.
Toshiba is a sprawling conglomerate that soared to prominence, but in 2015, it faced turmoil due to an accounting scandal involving profit padding. The company also incurred heavy losses in its American nuclear subsidiary, leading to pressure from new activist shareholders after a revival
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