Market takes Toshiba’s massive dilution in stride
Tokyo — Toshiba’s plan to raise about $5.4bn through a sale of new shares will help it avoid a delisting, but will also mean more than 30 overseas investors, including activist funds, will own 35% of the embattled conglomerate.
The move, decided at a board meeting on Sunday, will allow Toshiba to pay off billions of dollars in liabilities at its bankrupt US nuclear power business, Westinghouse.
That in turn gives it the funds to return to positive net worth by the end of the financial year in March, as an $18bn sale of its prized memory chip unit is unlikely to close before then.
The issue of 2.28-billion new shares at ¥262.80 per share, a 10% discount to Friday’s close, will result in a massive 54% dilution in earnings per share.
Toshiba’s shares were, however, down just 5% in early afternoon trade as the delisting risk was removed and as the capital raising had been expected.
The stock was last trading above the sale price, at ¥277.
"Toshiba’s fundraising news eliminates the risk of Toshiba being delisted, so that part is positive," said Takatoshi Itoshima, chief portfolio manager at Commons Asset Management.
"What’s also positive is that the fundraising will improve the company’s financial health. There is an argument that the company will be left with nothing (without the chip business), but it’s good that the company’s capital will recover."
Third Point, Oasis Management Company and Cerberus Capital Management were among the more than 30 investors that invested through about 60 funds.
Singapore-based fund Effissimo Capital Management, established by former colleagues of Japan’s best-known activist investor, Yoshiaki Murakami, will become the largest shareholder in Toshiba with an 11.34% stake.
Payments for the new investment are due to be completed on December 5.
Toshiba also confirmed it was looking at selling Westinghouse assets.
Sources told Reuters in September that Westinghouse was working with investment bank PJT Partners on a sale process.
Private equity firms Blackstone Group and Apollo Global Management have teamed up to bid for the business, while Cerberus Capital Management was in talks with US nuclear power plant component provider BWX Technologies about submitting a joint bid, the sources said at the time.
Toshiba had initially planned to use funds from the sale of its chip unit to cover its Westinghouse liabilities, but a highly competitive and contentious auction process led to delays in deciding on the buyer and has meant that Toshiba may not obtain the necessary anti-trust clearance by the end of March.
The chip deal still faces legal challenges from its chip joint venture partner Western Digital, which argues no deal can proceed without its consent and has sought an injunction through an international arbitration court.
Toshiba is demanding that Western Digital drop the litigation as a condition over a coming round of a joint investment in Toshiba’s new flash-memory chip production line in Yokkaichi, Japan.
The two companies held talks in the US last week for settlements, but have yet to agree on details, sources familiar with the matter said.