Honeymoon with no romance already Toshiba and its activist shareholders There is a risk of complete failure.
Japan’s oldest conglomerate is being pressured by the largest investors to stop radical restructuring and private equity trading, resulting in a 50% rise in stock prices that activists believe will value the company correctly.
The pain in Toshiba’s boardroom is focused on the need for a credible plan to raise the value of the stock to 7,000 yen ($ 64), with at least five out of the ten largest investors worthy. believe. It is the latest chapter of the story that has plunged the Japanese market, long known for its cozy relationship between shareholders and management, into an uncharted territory.
Already this year, Toshiba has endured a defeat at an extraordinary general meeting after an explosive independent report forced by shareholders on the company. Suspicion of collusion Between management and the Japanese government to suppress activist investors.
The rebellion, led by Singapore-based fund Effissimo and sponsored by US-based Fallalon, was with Toshiba CEO. Chair.. After that, Toshiba agreed to complete the strategic review by the end of October.
Today, after months of board deliberation and consultation with the world’s largest private equity firms such as Bain Capital, KKR and Brookfield, people familiar with the matter say that the 146-year-old company has a choice. It was narrowed down to just three.
The first is to rebuild and sell billions of dollars worth of non-core assets of a group that spans air conditioning, defense and nuclear lifts. The second is to secure bids from private equity and exclude the entire technology conglomerate from the $ 30 billion investor.
The third option under consideration by the board is a hybrid version of them, in which private equity buyers acquire shares large enough to give activist shareholders a quick and profitable exit option. That is.
Investors have given the new board a “honeymoon” period to consider the company’s future after confronting Toshiba in June, but individuals understand that it seeks out all options. Said.
“I think Toshiba was always very confident that it was doing this process honestly. There are a lot of rumors around it. [the board] A shareholder who has held Toshiba shares since 2018 said he “has not adopted the PE acquisition option.” “If we don’t agree on a strategic review, we’ll be disappointed and our honeymoon will end soon,” he said.
Need to listen
Toshiba’s vulnerability to investor pressure is rare in Japan. However, after nearly collapsed in 2017 due to an accounting scandal and the bankruptcy of the U.S. nuclear business, Toshiba needed about $ 6 billion in cash to strengthen its balance sheet and avoid delisting from the Tokyo Stock Exchange. I was there.
I chose to raise shares because I have few options. As a result, foreign activist funds were packed into the shareholder list at once, and the total investment ratio exceeded 20%, leaving strong leverage.
In recent weeks, the group’s Strategic Review Committee, advised by UBS, has met with Bain, KKR, Brookfield, and Japanese fund integrals, according to people with controversial knowledge. All private equity companies in consultation with Toshiba are bound by non-disclosure rules.
However, as a sign of the extraordinary nature of the process, discussions about what could be a historic private equity transaction, without mentioning the valuation, and the CEO and the chairman of the board carrying out the plan. It is deployed in the absence of.
Toshiba’s board of directors earlier this month said it was talking to potential investors about “the feasibility of privatization,” but admitted that it was undecided which way to go. “These discussions were constructive,” he added.
The board addressed why the valuation was not discussed and stated that “when the value enhancement discussion is completed satisfactorily, a meaningful and informed discussion of pricing is most productive.” rice field.
The company declined to comment further on the Financial Times on the strategic review.
Satoshi Tsunakawa, the company’s interim CEO, also serves as interim board chairman until Toshiba convenes an extraordinary general meeting and appoints a new leadership team. However, it is unlikely that it will be assembled by the time Toshiba publishes the review.
“Toshiba has transformed into a company that needs to reflect the opinions of its shareholders more seriously in its business plans,” said Kota Ezawa, an analyst at Citigroup.
Among Toshiba’s shareholders, more aggressive funds have said they will reject the offer if the review returns without a delisting transaction and a clear price.
According to another person close to the debate, the board’s concern is that if a potential valuation is leaked, investors will demand higher prices and eliminate the possibility of trading.
“No one wants to talk about it, but the reason the debate isn’t going on is also because there’s a gap between the committee and private equity about what a correct assessment should be,” he said.
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For buyout companies, Toshiba is an attractive opportunity in a fertile hunting ground market as Japanese companies are increasingly calling for restructuring and clarification of focus.
Private equity firm CVC’s attempt to acquire $ 20 billion collapsed earlier this year, highlighting the hurdles in acquiring a company that provides quantum computing, nuclear and defense technologies. Japan opposes the dissolution of Toshiba, according to government officials.
But the vast group is rich in other less sensitive businesses that can be opened up without causing political backlash, analysts say.
Toshiba TEC, which develops POS systems for retailers, is at the top, and Toshiba Carrier, an air conditioning valve company, is also targeted. The group also owns NuFlare, a semiconductor equipment manufacturer that is the subject of a 2018 hostile takeover attempt by optical glass specialist Hoya.
“Investors may be able to derive value from the company without taking over everything,” said Damian Ton, an analyst at Macquarie. “What’s left of Toshiba may not be that interesting, but it still has an important business in infrastructure and industrial equipment.”
Despite the recent dire situation, Toshiba continues to be the company most closely associated with the modernization of the country for many Japanese. It played a central role in electrifying both the home and the public, and in creating the white goods that are characteristic of Japan’s huge middle class and economic development.
As a further sign of turmoil, discussions about Toshiba’s future and its proper valuation are uncertain about Kioxia, a chip maker holding a 40% stake after selling the rest to a Bain-led consortium in 2018. Is complicated by.
Kioxia, which was scheduled to go public in Tokyo this year, is said to be in talks with its long-time US partner Western Digital. In a potential deal, people say Western Digital will buy Kioxia for about $ 20 billion and its new headquarters will be based in the United States. Western Digital declined to comment.
The combination of the two will further increase the ambitions of both Japan and the United States to build a semiconductor champion that reduces China’s reliance on chip supply chains, analysts said.
However, according to people familiar with the matter, Tokyo officials have shown initial resistance to the merged entity being based in the United States, and the deal faces hurdles. A transaction regulatory review can take 18 months or more and is at risk of being disrupted by Beijing.
Kioxia said it was still considering listing its shares in Tokyo, but those familiar with Bain’s ideas are discussing “both options, or neither,” at least for now. Said.
A year after the turmoil, investors say Toshiba’s board needs to offer far more than box-tick exercises when presenting strategic reviews.
“If we can really believe that there were no private equity bids, we will continue to be involved in the board,” said one Toshiba shareholder. “We are now giving them the benefit of doubt, but there is little credibility in what Toshiba management is saying at this time.”
Toshiba faces uphill struggle to win over restive investors Source link Toshiba faces uphill struggle to win over restive investors