Toshiba Breakup - How Did We Get Here?
In mid-November, Toshiba announced its intention to separate into three standalone companies. Infrastructure Service Co. will consist of Toshiba’s energy, infrastructure, building, digital and battery businesses. Device Co. will contain Toshiba’s electronics and storage businesses, including its semiconductor products. Toshiba will maintain its name and will hold its ownership stake in Koxia Holdings Corp and Toshiba Tec Corp. This reorganization is expected to be completed by the end of 2023.
The move is the most recent domino effect stemming from their 2015 accounting scandal in which Toshiba was caught overstating profit by over $1.3B. According to Reuters, “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.”
Toshiba’s board has been fighting with investors ever since. This culminated in 2021 in a brawl over the board’s rejection of a proposed $20B buyout by a British equity firm. The activist investors attempted to replace the board members but Toshiba’s nominees won in a clean sweep. However, as Bloomberg reports, “an independent investigation later found management had tapped government allies and worked hand in hand with public officials to sway the outcome of the voting.”
According to Reuters, Toshiba commissioned a separate report “that found executives, including its former chief executive, had behaved unethically but not illegally.” It went on to say “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.”
All of this led to the five-month strategic review which recommended this drastic corporate breakup. Reuters reports that this plan “is partly designed to encourage activist shareholders to sell their stake.”
Chief Executive, Satoshi Tsunakawa, maintains Toshiba ” 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.”
The question now is whether the unhappy activist investors will be able to block the plan in the “extraordinary general meeting the company plans to hold by March.” An anonymous portfolio manager for one of these activist funds laid it out: “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.”