Toshiba Shareholders Draw the Short Stick, Again

Toshiba said Thursday that it had agreed to a $15 billion deal to take the company private, led by Tokyo-based private-equity fund Japan Industrial Partners or JIP. While the offer price implies a 10% premium to Thursday’s closing price, it’s likely below what many activist shareholders, who have been pushing for a sale, were hoping for. For example, it is 7% lower than a bid from CVC two years ago, which Toshiba rejected. In fact, even Toshiba said it couldn’t recommend shareholders accept the deal immediately as the price isn’t high enough. The company will form a special committee to discuss whether it should make a recommendation.

So it’s uncertain whether the bid will be accepted by two-thirds of shareholders, the threshold required by the offer. The board, which includes two representatives from activist shareholders, unanimously agreed to the deal, but the fact that it didn’t make any formal recommendation to shareholders means the offer is still in the balance.

The fact that the process of finding a buyer has been dragging on for nearly a year hasn’t helped. The company said the consortium has kept lowering its price in recent months: stock markets have tanked while Toshiba’s own performance hasn’t been great either. The firm reported a profit decline and cut its annual profit forecast last month. One key asset of Toshiba is its stake in memory-chip maker Kioxia—but free-falling memory chip prices in the past few months mean it is worth much less now. Toshiba has lost around a quarter of its value since June last year.

The large number of investors in the buyers’ consortium—it includes 17 Japanese companies and six financial institutions apart from JIP—probably wasn’t conducive to a swift decision. National security concerns—Toshiba has nuclear energy and defense businesses—have likely kept foreign buyers away.

As independent analyst Travis Lundy wrote on investment research platform Smartkarma, the deal may come down to “Toshiba fatigue”—in other words, whether activist investors have the stomach to keep fighting or will finally move on. Some of them invested in the company as early as 2017 when Toshiba raised $5.3 billion from dozens of foreign funds after disastrous losses in its nuclear business. Since then, Toshiba has sold a majority stake in its crown jewel Kioxia, then known as Toshiba Memory. It has colluded with government officials to prevent foreign investors from exercising their rights. Its chairman was kicked out by shareholders. It tried to split into three. Then it tried to split into two. But eventually shareholders voted against the split in favor of an outright sale.

Investors who were excited that Toshiba finally agreed to sell itself may be disappointed with the offer. But after so many futile attempts, some may decide to take what they can get. If that is indeed the outcome, it will cast Japan’s progress on corporate governance in a rather unflattering light.

Write to Jacky Wong at [email protected]