Activist investor pressure seen behind surprise $20bn bid for Toshiba
Tokyo — The surprise takeover bid for Toshiba is a palpable demonstration of the growing influence in corporate Japan of activist investors, who have gone from largely impotent onlookers to kingmakers in the space of just a few years.
The offer from CVC Capital Partners, while still in the early stages, comes just weeks after Toshiba CEO Nobuaki Kurumatani lost a landmark shareholder vote, forcing an independent investigation into alleged issues with voting at its annual general meeting in 2020.
That loss has piled pressure on Kurumatani, who barely won re-election at last year’s meeting and is seen as unlikely to survive another. The vote was triggered by Toshiba’s largest shareholder, the secretive Singapore-based hedge fund Effissimo Capital Management.
Any deal for Toshiba faces legal hurdles, and analysts say that investors such as Effissimo would probably insist on a substantial premium from Tuesday’s closing price. But the episode shows that the influence of activism in Japan is becoming hard to deny.
“There have been false dawns before,” said Justin Tang, head of Asian research at United First Partners in Singapore. “But activism is taking hold now.”
The Japanese conglomerate said on Wednesday it would seek more information about the bid as it weighs the proposal. The Nikkei, which first reported the deal, said CVC plans to propose to take Toshiba private through a tender offer that could be worth more than $20bn. That would make it the largest private-equity led buyout since 2013, and CVC’s biggest acquisition on record.
Toshiba shares surged 18.28% to their daily limit after being untraded on a glut of buy orders on Wednesday.
While there are many hurdles to a deal taking place, Toshiba shares rose by their daily limit of 18% to ¥4,530 per share at the close in Tokyo.
“Considerable value would be created simply by simplifying ownership and clarifying governance by taking the company private,” said Nicholas Benes, an expert on Japanese corporate governance. “Precisely because of that, one would very much hope that this is a case where Toshiba will be open to other bids, by both other PE firms as well as strategic acquirers.”
Activist investors have been flexing their muscle in Japan in recent years, as corporate governance reforms promoting shareholder value have meant management can no longer dismiss such pressure. Tokyo Dome will be delisted in April after its acquisition by a white knight in 2020 to fend off pressure from activist investor Oasis Management.
Once a storied name in Japan, Toshiba has faded dramatically since its glory days after years of management missteps and scandal. The conglomerate invented flash memory three decades ago, but it was forced to sell most of its prized chip business in 2018 because of losses in its nuclear-power operation.
That deal led to an infusion of cash — but also a large contingent of more vocal shareholders. Last week, Singapore fund 3D Investment Partners became the latest investor to say it may make proposals to management, boosting its stake to more than 7%.
“Any successes of this nature will probably snowball and lead to more activity,” said Damian Thong, an analyst at Macquarie Group. “There is a sense that a large part of Japan’s industrial base is being run inefficiently, resulting in apparent undervaluation of Japanese conglomerates.”
One open question for Toshiba is the future of Kioxia Holdings, its former memory-chip division in which it still holds the biggest stake. Kioxia is focused on going public as soon as this summer in an IPO that could value the business at more than $36bn, Bloomberg News reported last week. Alternatively, Micron Technology and Western Digital are each to be interested in acquiring the firm, the Wall Street Journal reported.
If Toshiba secures a reasonable market valuation for Kioxia, and its core businesses attract multiples similar to those of its Japan peers, Thong said he sees scope for more than ¥1-trillion of shareholder value creation. That would imply a Toshiba share price of over ¥6,500 per share, while the deal reported by the Nikkei sets the price at about ¥5,000 apiece.
Mio Kato of LightStream Research sees a low possibility of the deal going through under current terms, and expects volatile trading for Toshiba’s shares in the near term depending on how things develop. Toshiba’s shareholders, especially activists, will want a rather “steep price”, he wrote in a note published on SmartKarma.
Given the sensitivity about several of Toshiba’s businesses, including its deep involvement in decommissioning the wrecked Fukushima Daiichi nuclear power plant, government approval would be required for the deal, chief cabinet secretary Katsunobu Kato said on Wednesday.
It’s unclear if a foreign firm such as CVC would be allowed to take control of Toshiba. The relationship between CVC and Toshiba executives — with Kurumatani a former Japan president and external director Yoshiaki Fujimori still employed by the firm — has also raised eyebrows.
“This could simply be an attempt to buy time for Kurumatani,” Kato said.
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