Japanese conglomerate Toshiba is actively soliciting proposals from potential investors and sponsors about the future of the company, including taking the business private in order to increase its corporate value.
The board’s April 21 communication represents a capitulation to demands from large hedge fund investors to explore options – up to and including a company sale – to realise a greater value from their investment.
Toshiba has endured difficulties ever since its Westinghouse Electric nuclear power station building division ran into trouble, and then headed into bankruptcy in 2017. One of Toshiba’s actions to reduce the loss was to sell off part of the Memory Business to a Bain Capital-led consortium. The Bain Group then reorganized the business, which had a joint-venture foundry operation with Western Digital, and it became Kioxia in October 2019.
Kioxia is 40 percent owned by Toshiba and realizing the value of that stake is important to Toshiba’s future.
Chairman Osamu Nagayama was voted out by shareholders in June 2021 after a corporate governance scandal. Nagayama had already rejected suggestions he resign after major investor Effissimo, which had alleged irregularities with appointments, said Toshiba’s removal of two of the three members of its audit committee was not enough.
Toshiba’s management, run by interim CEO Satoshi Tsunakawa, then proposed dividing Toshiba into three separate companies in November last year, with Kioxia being sold and the cash given to shareholders.
Three way split
This tripartite idea was actually put forward by a Strategic Review Committee (SRC), appointed in May 2021. This followed Toshiba rejecting a takeover bid by CVC, another private equity business.
But the three-way split was rejected for not going far enough. Toshiba’s management subsequently proposed separating Toshiba into two business entities in March this year. Effissimo rejected that idea as well, as did Toshiba’s second largest shareholder, 3D Investment Partners.
Tsunakawa resigned in March and corporate SVP Taro Shimada was appointed as Toshiba CEO. Earlier this month Effissimo agreed to sell its stake to Bain Capital, were Bain to make a formal takeover bid for Toshiba.
Faced with unrelenting opposition to by the largest shareholders, Toshiba management are considering their optins. Toshiba has retained Nomura Securities as its financial advisor and wants to receive confidentiality pledges from “potential investors and sponsors as our potential partners.”
The business will then provide “detailed company financial and business information“ and “hold discussions in a timely manner with a view to receiving non-binding proposals on strategic alternatives.”
Toshiba will publicly announce the number of non-binding proposals received and the structures of the deals offered ahead of a Toshiba Annual General Meeting scheduled for the second half of June. The best offer will be revealed after the AGM.
Should the business be broken up, Toshiba’s disk drive business could be attractive both to Western Digital, Kioxia’s NAND fab joint-venture partner, and Seagate. And Toshiba’s share in the Kioxia NAND business could be sold in part through a Kioxia IPO. If Western Digital could find the cash, buying Toshiba’s share of Kioxia would be in its long-term flash chip supply interests.