Tue, Nov 21, 2017 - Page 10 News List

Toshiba share sales open door to activists

Bloomberg

Toshiba Corp’s plan to raise more money might bring in vocal investors more willing to take an active role in the electronics maker’s affairs.

David Einhorn’s Greenlight Capital, Daniel Loeb’s Third Point and other investors have agreed to buy ¥600 billion (US$5.35 billion) worth of newly issued shares, an extra cushion of cash on top of the already-agreed ¥2 trillion sale of the Tokyo-based company’s chips business to a group led by Bain Capital.

While that deal is still on track, there were risks to its completion by the end of March, which is Toshiba’s deadline to reverse negative shareholder equity and avoid being delisted.

Now, the tradeoff is that a total of about 60 funds, including Effissimo Capital Management Pte, are now to become shareholders controlling a bigger stake in Toshiba. The sale of 2.28 billion new shares will represent about a third of the company after they are issued, giving them a platform to push for changes.

That could lead to more parts of the company being sold off, or deeper jobs cuts, Ichiyoshi Asset Management Co executive officer Mitsushige Akino said.

“Foreign funds and activists might be proposing changes and restructuring to Toshiba management in future,” Akino said. “Toshiba’s management might want to take advantage of such pressure from overseas funds to carry out large-scale reforms, which require job cuts and asset sales.”

Toshiba shares at midday on Monday fell as much as 6.2 percent in Tokyo, to ¥274. The proposed transaction, which was approved by Toshiba’s board on Sunday, set the sale price at ¥262.8 per share, or about 10 percent less than Friday’s closing price.

Toshiba expects the share sale transaction to be completed early December, the company said in a statement.

The company is exploring the divestment of its Westinghouse-related assets in a bid to avoid being delisted from the Tokyo Stock Exchange, it said.

Toshiba is struggling to recover from multibillion-dollar losses in the Westinghouse nuclear operations in the US.

Toshiba’s flash memory unit might not be sold in time to bring in the necessary capital, because it needs to clear competition laws in different countries.

Another risk to the chip division sale is a spat between Toshiba and business partner Western Digital Corp, which has argued it should have veto rights in any sale because of their joint ventures and tried to buy the unit itself.

If the transactions are successful, Toshiba expects that the consolidated negative ¥750 billion on its balance sheet might be erased by the end of the fiscal year in March.

“Eliminating excessive debt and bolstering capital can certainly be seen in a positive light,” said Tokai Tokyo Securities analyst Masahiko Ishino. “But dilution is still something to be reckoned with.”

Effissimo, an investment firm based in Singapore run by Japanese investors, is already Toshiba’s biggest shareholder, with a stake of about 10 percent. It is also buying the largest block of stock, 320 million shares, in the new share sale.

While Effissimo probably would not take an activist role in Toshiba, Third Point has pushed for changes at Japanese companies in the past, notably Sony Corp and Fanuc Corp.

“The foreign funds and activists are seeking upside, betting on the possibility Toshiba will achieve a V-shaped recovery,” Akino said.

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