Toshiba reveals breakup plans following activist shareholders’ pressure

By Amirtha P S, Desk Reporter
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Japanese multinational conglomerate, Toshiba Corp has confirmed its plans to split the company into three different businesses, as part of its attempt to satisfy activist shareholders calling for a radical overhaul since an accounting scandal in 2015.

Toshiba said the three companies would be focused on infrastructure, semiconductors and devices. The Japanese company’s breakup comes at the same week the US industrial powerhouse General Electric called time on its sprawling empire and Johnson & Johnson announced it was splitting up too.

The company’s plan will see it spin off two core businesses, its energy and infrastructure unit as well as its device and storage operation. After leaving those two companies, Toshiba will continue to own a 40.6 percent stake in memory chipmaker Kioxia as well as other assets. The company plans to complete the overhaul by March 2024.

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, as per sources related to the matter.

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.

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.

Mr. Satoshi Tsunakawa, Chief Executive of Toshiba, said that the company 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 conglomerate has struggled from crisis to crisis since the accounting scandal in 2015. Two years later, it secured $5.4 billion in funding support from more than 30 overseas investors that helped avoid a delisting but brought in activist shareholders including Elliott Management, Third Point and Farallon.

The stress between management and overseas shareholders has dominated headlines since then. In June, a 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.

Under the overhaul, Toshiba aims to return $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.

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