Toshiba considers next step after shareholders reject plan to split company

Tokyo — Toshiba shareholders on Thursday voted down competing proposals by management and activist shareholders, leaving the future direction of the embattled Japanese conglomerate uncertain.

Management’s plan to spin off Toshiba’s devices unit and the separate call to seek buyout offers had both failed to gain the required 50% of the vote.

The untidy outcome ensures there will be no immediate end to a four-year scandal-filled battle between management and foreign activist hedge funds, while underscoring deep divisions among Toshiba shareholders.

Opposition to Toshiba’s plans to break up the company had been widespread and included proxy advisory firms, and its failure comes as no surprise. But the outlook for Singapore-based 3D Investment Partners’ proposal that Toshiba solicit private equity buyout offers or a minority investment had been less clear cut.

Although 3D and Toshiba’s other top two shareholders had supported the quest for a buyout offer, proxy advisory firm Institutional Shareholder Services (ISS) had advised against it, saying the proposal "appears overly prescriptive and premature".

Where Toshiba management goes from now is very much an open question though the company is expected to revise its restructuring plan and some analysts said they expect sales of some assets such as Toshiba Tec, which makes point-of-sale systems and copiers.

At the end of the extraordinary general meeting Toshiba’s new CEO, Taro Shimada, a former Siemens executive, said only  that the company "would consider various strategic options".

Toshiba’s shares ended down 0.5% after the results.

Activists to fight on

For some observers, the results represented a major setback for the activist hedge funds.

"It looks terrible for the activists primarily because they don’t have a big enough stake to dictate the voting and are unwilling to commit further capital," said David Baran, co-founder of fund management firm Symphony Financial Partners.

"They’re trapped. They thought they could get away with their US-style tactics because it made sense to them. Well, how’s that working out?" he added.

But the push for a buyout, which has the potential to yield solid returns for hedge funds that bought into the crisis-ridden conglomerate, is far from over.

Activist shareholders plan to fight on to force the company to restart talks with private equity firms regardless of the vote outcome, sources familiar with the matter have previously told Reuters on condition of anonymity.

Some shareholders have also said they expect one or two top investors to nominate their own representatives for the board at Toshiba’s annual shareholders meeting in June to make the company solicit private equity buyout offers.

During the five-month strategic review conducted last year, Toshiba held discussions with private equity firms but decided not to entertain potential offers.

It also walked away from advanced talks for a minority stake from Canada’s Brookfield Asset Management, sources have said, adding that the private equity firms Toshiba held talks with included KKR and Bain Capital.

Toshiba has argued that the potential buyout offers were insufficiently compelling.

The make-up of Toshiba’s board will also be a key focal point amid criticism that it conducted a flawed strategic review which led to the plans to break up the company.

Paul Brough, the chair of the five-member strategic review committee, has indicated he would reconsider his position if the breakup plan was voted down, ISS said in a report.

Toshiba’s management has been under pressure from activist funds since it sold ¥600bn ($5bn) of stock to dozens of foreign hedge funds during a crisis stemming from the bankruptcy of its US nuclear power unit in 2017.

Acrimony between the two sides hit several boiling points in the past two years. Last June, a shareholder-commissioned probe found Toshiba colluded with Japans trade ministry — which sees the conglomerate as a strategic asset due to its nuclear reactor and defence technology — to block overseas investors from gaining influence at its 2020 shareholder meeting.

Reuters