|
A
rare move in a country dominated by conglomerates, Toshiba's
breakup comes the same week U.S. industrial powerhouse General
Electric called time on its sprawling empire and Johnson &
Johnson announced it was splitting up too.
Founded in 1875, Toshiba plans to house its energy and
infrastructure divisions in one company while its hard disk
drives and power semiconductor businesses will form the backbone
of another. A third will manage Toshiba's stake in flash-memory
chip company Kioxia Holdings and other assets.
The plan, borne of a five-month strategic review undertaken
after a highly damaging corporate governance scandal, is partly
designed to encourage activist shareholders to sell their
stakes, sources with knowledge of the matter have said.
A breakup, however, runs counter to calls by activist investors
for Toshiba to be taken private and some major shareholders said
the plan may struggle to get through an extraordinary general
meeting due to be held by March.
The overhaul was announced after markets in Japan had closed but
the company's Frankfurt-listed shares fell 4% at the open on
Friday highlighting investor disappointment. The shares later
recovered slightly in very low volume.
Toshiba's strategic review committee said the idea of going
private had raised concerns internally about the impact on its
businesses and staff retention while offers from private equity
firms were not compelling relative to market expectations.
Private equity firms had also conveyed concerns about completing
a deal due to possible conflicts with Japan's national security
law and potential opposition from antitrust regulators, the
company said.
"After much discussion, we reached the conclusion that this
strategic reorganisation was the best option," Chief Executive
Satoshi Tsunakawa told a news conference.
CRISIS TO CRISIS
He said Toshiba, which hopes to complete the overhaul in two
years, would have chosen to split up regardless of the presence
of activist shareholders and that Japan's powerful trade
ministry had not voiced objections to the plan.
One major Toshiba shareholder said other investors might still
consider nominating a new board director to push though an
auction process.
"The option to take Toshiba private can create more value in a
shorter period of time than the break-up," the shareholder said.
A portfolio manager at an activist fund with Toshiba shares said
the plan was disappointing and unlikely to be voted through at
the extraordinary general meeting the company plans to hold by
March.
"The activists have two options now: you can sell and go away
and come back in two years time or you can buy more shares and
fight this thing at the EGM. I'm going to go and think about
what to do," said the manager, who declined to be identified.
The 146-year-old conglomerate has lurched from crisis to crisis
since an accounting scandal in 2015.
Two years later, it secured a $5.4 billion cash injection from
more than 30 overseas investors that helped avoid a delisting
but brought in activist shareholders including Elliott
Management, Third Point and Farallon.
Tension between management and overseas shareholders has
dominated headlines since then. In June, an explosive
shareholder-commissioned investigation concluded that Toshiba
had colluded with Japan's trade ministry to block investors from
gaining influence at last year's shareholders meeting.
'EXCESSIVE CAUTIOUSNESS'
Earlier on Friday, Toshiba released a separately commissioned
report that found executives, including its former chief
executive, had behaved unethically but not illegally.
It said Toshiba was overly dependent on the trade ministry and
problems had also been caused by its "excessive cautiousness"
towards foreign funds and an unwillingness to develop a sound
relationship with them.
Under the overhaul, Toshiba aims to return 100 billion yen ($875
million) to shareholders in the next two financial years.
It also said it intended to "monetize" its Kioxia shares and
return the net proceeds in full to shareholders as soon as
practicable, a change from a previous plan to return only a
majority of the proceeds.
Other assets that will continue to be held by Toshiba include
its stake in Toshiba Tec Corp, which makes printing and retail
information systems.
Toshiba plans to complete the overhaul by March 2024.
A trade ministry official said the government would be
interested in how the breakup affects Toshiba's businesses
related to national security, which include radar systems.
Toshiba also reported on Friday that its second-quarter
operating profit roughly doubled to 30.4 billion yen ($267
million) as it recovered from a slump triggered by the
coronavirus pandemic.
"It makes sense to split if the valuation of a highly
competitive business is hindered by other businesses," said
Fumio Matsumoto, chief strategist at Okasan Securities.
"But if there isn't such a business, the breakup just creates
three lacklustre midsize companies."
($1 = 113.9700 yen)
(Reporting by Makiko Yamazaki; Additional reporting by Scott
Murdoch in Hong Kong and Ritsuko Shimizu in Tokyo; Editing by
Edwina Gibbs and David Clarke)
[© 2021 Thomson Reuters. All rights
reserved.] Copyright 2021 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content.
|
|
