Japan’s crisis-hit Toshiba gets rid of it and enters an era of private ownership

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After nearly a century and a half and 74 years as a public company, Toshiba was delisted by the Tokyo Stock Exchange on Wednesday — a warning to global investors, one of its outgoing board members said, of “what works and doesn’t work.” in Japan”.

Toshiba’s exit from the public markets is the result of the country’s biggest ever foreign exchange buyout: a ¥2tn ($14bn) deal led by private equity group Japan Industrial Partners.

That deal followed eight years of turmoil, including an accounting fraud scandal, a financial crisis, asset fire sales and a bitter battle between management and activist shareholders.

During those years, Toshiba revealed management flaws and the company’s reluctance to act in the interests of shareholders, fund managers who held its shares during that period, former board members who are still banned from speaking publicly, and bankers and lawyers who advised the company through its many trials.

“Ultimately, I felt that many of Toshiba’s management problems were irreparable,” said one outgoing board member, adding that the Japanese industrial giant’s exit into private hands may be the only scenario in which restructuring is required. , sell non-core assets and become an efficient user of its capital.

“Toshiba is like a state-owned company that doesn’t have a shareholder-centric mindset,” said the person at the conglomerate, which makes everything from batteries and chips to nuclear power and defense equipment.

Toshiba declined to comment. The company said in a statement on Tuesday that it is taking “an important step towards a new future with a new partner” and will “strive to further enhance its corporate value and contribute to society”.

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A private equity executive associated with Toshiba said its protracted test would be “must read” for any investor looking at the Japanese market, hoping it could easily unlock billions of dollars worth of trapped value.

“Financial institutions such as private equity and hedge funds see Japan as a great opportunity, and will no doubt continue to do so. But Toshiba is a case study in how far management and shareholder expectations can diverge,” said a former executive board member. “Shareholders are partners, not opposition parties. A lot of time was spent convincing Toshiba management that.”

But others, including Nabeel Panji, a senior portfolio manager at Elliott Activist Fund who has been appointed as an independent director on the Toshiba board in 2022, said they believed the Toshiba saga would prove to be “a case study of a renewal of a Japanese icon”.

Board members leaving the company this week questioned whether many of the red flags raised by Toshiba’s eight-year ordeal would now be addressed. In its final year as a public company, Toshiba was overseen by a board that included women, non-Japanese and activist shareholders. According to the agreement, the six new directors nominated by JIP will all be Japanese men, and only chief executive Taro Shimada will retain his job.

Another former board member, without the glare of scrutiny associated with a public company, predicted that Toshiba would eventually be split into several companies — a proposal proposed by consultants in 2021 but rejected by shareholders amid intense distrust.

Its sale, instead of private equity, was the culmination of a process that began in 2017 when the company was trusted by Goldman Sachs to issue $6bn worth of new shares as a means of staving off bankruptcy.

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These were mostly bought by hedge funds, which meant that after years of dealing with shoddy domestic companies, Toshiba faced a shareholder registry that was suddenly swarmed with aggressive foreign funds.

“The problem you had was that Toshiba had built into its DNA the idea of ​​always wanting to expand, so its management saw the company as a growth story. However, the new shareholders saw it as a value play, and that was the source of a long period of mistrust and conflict,” said one of the company’s advisers. .

The four exiting board members said the situation between shareholders and management reached a point in 2021 where it was difficult to find any way forward, and the impasse was resolved when activists Elliott and Farallan joined the board.

“I believe what happened at Toshiba heralds an era in which shareholder value is more valuable, and independent directors on other boards are beginning to exercise their power more strongly than in the past,” said one former board member.

Video: The Extraordinary Toshiba Saga | FT is a big deal

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