Toshiba Stockholder Opposes The Split And Wants The Board To Consider Proposals

On Wednesday, Toshiba Corp’s second-largest shareholder opposed the Japanese company’s decision to break itself into three businesses, instead urging it to seek offers from potential purchasers.

In a three-page letter to Toshiba’s board, investment fund 3D Investment Partners, which controls more than 7% of the business, laid out its reservations, becoming the first large shareholder to openly oppose the break-up plan announced earlier this month.

The letter expresses shareholder dissatisfaction with Toshiba’s proposal, which has been reflected in the company’s recent poor stock performance, and increases the potential that the break-up will face opposition at a shareholder meeting early next year.

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Toshiba’s representative stated that the company does not comment on individual shareholder meetings. 3D did not respond to a request for comment.

The proposed split is “very unlikely” to alleviate any of Toshiba’s present problems, according to Singapore-based 3D, and is instead quite likely to produce three underperforming firms in the image of today’s Toshiba.

According to 3D in its letter, Toshiba must access a formal procedure, create a compelling strategy for each of the companies, give thorough diligence equipment and management meetings to involved strategic and financial parties, inspire and facilitate stretch proposals from those parties, and analyze the best direction forward.

Following a governance controversy involving management’s suspected cooperation with Japan’s trade ministry to pressure foreign shareholders, Toshiba started its strategic review in response to investor demand.

Review In Five Months

Following the five-month review, Toshiba’s review panel met with six private equity companies, including KKR & Co (KKR.N) and Brookfield (BAMa.TO), to discuss strategic options such as going private, according to sources.

Despite the fact that the review panel never performed an auction including due diligence for a potential sale, it has stated that discussions with private equity companies revealed potential offers were not attractive relative to market expectations.

The review group, which is made up of five external board directors, has stated that no genuine proposals to take the company private have been received. It has been reported that the concept of going private has caused disquiet within Toshiba.

Although, 3D accused the review committee in its letter, which was also sent to the committee, for failing to seek suggestions for the sale of Toshiba or the partial disposal of certain of its businesses.

The fund stated:

“By relying too much on an uninspiring projection model and spurious allegations of regulatory, staff morale, and customer worries over a different ownership structure, the (committee) appears to have compromised its review and yielded.”

3D, created in 2015 by former Goldman Sachs banker Kanya Hasegawa, was one of the hundreds of overseas hedge funds that contributed to Toshiba’s $5.4 billion capital injection following the bankruptcy of its U.S. nuclear power subsidiary in 2017.

As per Refinitiv data relying on disclosures this year, 3D owns stakes in a range of smaller Japanese companies, including IT business Fuji Soft Inc (9749.T), textile and tech firm Daiwabo Holdings Co Ltd (3107.T), and musical publisher Avex Inc (7860.T).

According to Refinitv, it also owns a stake in MediciNova Inc (MNOV.O), a biotech company based in the United States.

Toshiba, established in 1875, plans to merge its power and infrastructure operations into one company while keeping its hard disk and semiconductor power activities separate. A third will be in charge of Toshiba’s share in Kioxia Holdings, a flash memory semiconductor firm, as well as other assets.

Toshiba expects to finish the renovations by March 2024.

Since the idea was initially published by the Nikkei business daily on Nov. 8, Toshiba’s stock has dropped more than 4%.

On Wednesday, the stock was down 2 percent at 4,652 yen, compared to a 1.4 percent drop in the Nikkei index (.N225).

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