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Toshiba Corp. has decided to accept a buyout plan by a consortium that includes a Japanese investment fund and domestic companies, aiming to reconstruct its management by going private.
This is an unusual choice, and the move should lead to the stabilization of the company’s management, which has been in turmoil for many years.
The consortium to acquire Toshiba is led by Japan Industrial Partners, Inc. (JIP), a domestic investment fund. About 20 domestic companies, including Chubu Electric Power Co., will reportedly join the buyout.
The JIP group will launch a tender offer around July. The price is set at ¥4,620, about 10% higher than the closing price on March 23, and the total buyout value is expected to be about ¥2 trillion.
The JIP side intends to acquire more than two-thirds of Toshiba shares on the way to making the company a wholly owned subsidiary.
Toshiba has been under pressure from foreign funds known as “activist shareholders” and other investors to return profits to shareholders in the short term. By going private, Toshiba is likely aiming to eliminate such pressure and to formulate a strategy from a long-term perspective.
Toshiba’s management has been in disarray since an inappropriate accounting scandal was uncovered in 2015. In an effort to restructure its management, the company received a ¥600 billion capital increase in 2017 mainly from activist shareholders. There is an aspect that this has prolonged the turmoil.
The management team and activist shareholders have been at odds with each other, and since April 2021, presidents and chairmen of the board of directors have been forced to step down. As a breakthrough measure, Toshiba presented a plan at an extraordinary shareholder meeting to restructure the company by splitting it up, but the proposal was voted down. Subsequently, the company publicly solicited restructuring proposals from outside parties.
In order for the tender offer to succeed, two-thirds or more of the shareholders must agree to sell their stake, and the focus of the issue will be whether the activist shareholders will agree to the sale.
At first, Toshiba accepted the foreign funds’ investment because it aimed to avoid delisting due to insolvency. The reason was that Toshiba was stuck on the idea of maintaining its listing in terms of its creditworthiness and other factors.
It is ironic that the company ended up choosing the opposite path of going private after all, in order to eliminate the influence of the activist shareholders.
From now on, even if the company goes private, it will still face many challenges. In order to survive, the company has sold off a number of businesses, including its consumer electronics division, with the result being that consolidated sales for the business year ended March 2022 were ¥3.3 trillion, less than half of the peak in the business year ended March 2008.
Toshiba says it will focus on such businesses as renewable energy, infrastructure including railway projects and digital data, but it has not presented a clear growth strategy.
Toshiba also has important businesses related to economic security, such as nuclear power generation, defense-related businesses and quantum cryptographic communications. It is essential for the company to quickly settle the turmoil, then pursue steady growth.
