Toshiba Corp outlined plans on Friday to split into three companies in an attempt to appease activist shareholders calling for a radical overhaul of the Japanese conglomerate after years of scandals, Reuters reports.
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.
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 through 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 2022.
“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.
A report has it that Toshiba agreed to sell its prized memory chip business to a consortium led by Bain Capital Private Equity.
The world’s second-largest producer of NAND memory chips said the deal was worth about $18 billion. The deal could help Toshiba plug a hole left in its finances following the bankruptcy of its U.S. nuclear unit, Westinghouse.