Japanese industrial conglomerate Toshiba Corp outlined plans on Friday to break up into three independent companies by spinning off two core businesses – its energy and infrastructure business as well as its device and storage business.
After spinning off the two companies, Toshiba will continue to own its 40.6% stake in memory chipmaker Kioxia as well as other assets.
The plan – borne of a five-month strategic review undertaken after a highly damaging corporate governance scandal – is partly aimed at encouraging activist shareholders to exit, sources with knowledge of the matter have said.
A break-up would run counter to calls by some shareholders for scandal-ridden Toshiba to be taken private but its strategic review committee said that option had raised concerns internally about its impact on business and the retention of staff.
Private equity firms had also conveyed concerns about completing a deal due to possible conflict with Japan’s national security law and potential opposition from anti-trust regulators, it added.
Chief Executive Satoshi Tsunakawa said Toshiba would have chosen the option to split regardless of the presence of activist shareholders and that Japan’s powerful trade ministry had not voiced any objections to the plan.
“The decision allows each business to significantly increase its focus and facilitate more agile decision-making and leaner cost structures,” the company said in a statement.
Toshiba’s announcement come just days after General Electric unveiled plans to split three ways – also marking the end of another pioneering conglomerate with more than 100 years of history.
RETURNS FOR SHAREHOLDERS
Toshiba hopes to complete the reorganisation by the second half of the 2023 financial year and said it aimed to return around 100 billion yen ($875 million) to shareholders over the next two financial years.
It also said it intended to “monetize” its shares in Kioxia, returning the net proceeds in full to shareholders as soon as practicable. But it did not elaborate on whether that meant it was still keen on an IPO or would be considering other options.
Other assets that will be continued to be held by Toshiba include its stake in Toshiba Tec Corp, a maker of printing and retail information systems.
Some Toshiba investors are not convinced that a break-up would create value, shareholder sources said ahead of a formal announcement of the plan.
“It makes sense to split if the valuation of a highly competitive business is hindered by other businesses,” said Fumio Matsumoto, chief strategist at Okasan Securities.
“But if there isn’t such a business, the break-up just creates three lacklustre midsize companies.”
The once-storied 146-year old conglomerate has lurched from crisis to crisis since an accounting scandal in 2015. Two years later, it secured a $5.4 billion cash injection from 30-plus overseas investors that helped avoid a delisting but brought in activist shareholders including Elliott Management, Third Point and Farallon.
Tension between Toshiba management and overseas shareholders has dominated headlines since then and in June, an explosive shareholder-commissioned investigation concluded that Toshiba colluded with Japan’s trade ministry to block investors from gaining influence at last year’s shareholders meeting.
Earlier on Friday, Toshiba released a separately commissioned report that found executives including its former CEO had behaved unethically but not illegally.
It concluded that Toshiba was overly dependent on the trade ministry, adding that problems were also caused by its “excessive cautiousness towards foreign investment funds” and “its lack of willingness to develop a sound relationship with them.”
Shares of Toshiba are down 1.3% since Nov. 8, when it first flagged it might be considering a split. Its Frankfurt-listed shares fell 4% at the open on Friday and are down 5.8% since Nov 8.
Recovering from a slump due to the COVID-19 pandemic, Toshiba reported second-quarter operating profit roughly doubled to 30.4 billion yen.