Mar 23, 2023
Toshiba Accepts $15 Billion Buyout Offer from JIP, Nikkei Says
(Bloomberg) -- Toshiba Corp. accepted a buyout offer from a Japanese consortium, as the iconic conglomerate moved a step closer to ending a troubled chapter in its more-than-140-year history. Shares jumped on Friday in Tokyo.
The Tokyo-based company’s board approved on Thursday a bid of about 2 trillion yen ($15.3 billion) from a group led by domestic private equity firm Japan Industrial Partners Inc., or 4,620 yen per share, it said in a statement. The offer is at about a 9.7% premium to Toshiba’s closing price on Thursday. Its shares rose 6.1% to 4,471 yen as of 9:09 a.m. local time.
As the next step, a tender offer is expected to start in late July, with the exact schedule to be announced later, the company said.
Seventeen Japanese companies and six domestic financial institutions will participate in the buyout, Toshiba said. Orix Corp., Rohm Co. and Chubu Electric Power Co. are among the firms, the Nikkei reported before the statement, confirming earlier Bloomberg News reports.
The move could bring down the curtain on years of turbulence at the storied Japanese firm after a series of scandals plunged it into difficulty and set it on the path to a sale. Toshiba’s management, the Japanese government and the company’s large proportion of vocal foreign shareholders have been at odds over the company’s future, with activist investors seeking to maximize returns while the state prioritized keeping sensitive technologies and businesses out of foreign hands.
“Having a resolution here would be a positive, as one of the issues for Toshiba has been a lack of a consistent strategy due to the constant changes of direction,” said Mio Kato, an analyst at LightStream Research. But “it still leaves some work to do in terms of establishing new growth drivers and maximizing the potential of some of the emerging businesses.”
The saga has become a test case for corporate governance in Japan as a list of prominent activist investors saw an opportunity and took stakes in the company. They included billionaire Paul Singer’s Elliott Management Corp., Seth Fischer’s Oasis Management Co. and Singapore-based funds Effissimo Capital Management Pte and 3D Investment Partners Pte.
And some of the world’s biggest private equity firms considered making buyout offers, including Bain Capital, CVC Capital Partners and KKR & Co.
Toshiba’s nuclear power business is deemed important to national security. It’s involved in decommissioning the Fukushima Dai-Ichi atomic power plant, which was wrecked in the earthquake, tsunamis and nuclear meltdowns of 2011. That made it hard for the government to accept a transfer of ownership to an overseas firm.
Before a downturn in demand for memory chips and hard drives, the consortium had offered as much as 5,500 yen per share, Toshiba said. But JIP lowered its bid a number of times since then, due to deteriorating market conditions, the difficulty in securing financing and Toshiba’s earnings outlook cut, it said.
If the sale goes through, it will be one of the largest Asian transactions this year at a time when deal volumes have plunged. It will also be one of the biggest ever private equity-led buyouts in Japan.
The path to the board’s acceptance has been far from smooth. The process faced multiple delays, with Bloomberg News reporting that the JIP-led group faced headwinds securing financing as banks became more cautious about providing funds for large deals in a less favorable economic environment.
Toshiba has lurched from one disaster to another over the past eight years, starting with an accounting scandal in 2015 that devastated profits and led to a company-wide restructuring. The subsequent unraveling of a costly foray into nuclear power business in the US led to a $6.3 billion writedown and saw it teeter on the edge of delisting. It was forced to sell its crown jewel memory-chip unit and offer stock that was snapped up by foreign investors.
Since then, stock owners and executives have clashed over the company’s future. When Effissimo sought in 2020 to put one of its co-founders and other candidates on Toshiba’s board, shareholders rejected it. Suspicious about how the vote was conducted, Effissimo proposed that independent investigators be appointed to look into it, winning a landmark shareholder vote in 2021. The report from the probe alleged that Toshiba management worked hand in hand with government allies to sway the outcome.
Early last year, stock holders rejected a proposal by management to split the company in two, which had been put forward as an alternative to selling the conglomerate to private equity, which investors had called for. The failure of that plan set in motion a search for strategic options for Toshiba’s future, including a possible sale. JIP was chosen as the preferred bidder in October.
Tokyo-based JIP was founded in 2002 by Hidemi Moue, who is still the buyout fund’s chief executive officer. He began his career at Industrial Bank of Japan Ltd., which was one of the companies that merged to form Mizuho Financial Group Inc. in 2000. JIP has been involved in carving out businesses considered peripheral by their parents, and is known for buying PC maker Vaio Corp. from Sony Group Corp. in 2014.
--With assistance from Min Jeong Lee, Fion Li and David Morris.
(Adds share move in second paragraph.)
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