Toshiba plans to split into three companies, shareholder reaction in focus

TOKYO, Nov. 12 (Reuters) – Japan’s Toshiba Corp (6502.T) on Friday outlined plans to break into three independent companies by spinning out two core businesses – energy and infrastructure, as well as unit and storage operations.

After separating the two companies, Toshiba will continue to own its 40.6% stake in the memory chip manufacturer Kioxia as well as other assets.

The plan – carried by a five-month strategic review carried out after a very damaging corporate governance scandal – is partly aimed at encouraging activist shareholders to go out, sources with knowledge of the case have said.

Toshiba said in a statement on Friday that it believed sharing the company was the best way to increase shareholder value.

“The decision allows each company to increase its focus significantly and facilitate smoother decision-making and slimmer cost structures,” the statement said.

Toshiba hopes to complete the reorganization by the second half of the 2023 financial year.

It also said that it intended to “monetize” its shares in Kioxia, and return the net proceeds in full to shareholders as soon as practicable. However, it did not elaborate on whether it meant that it was still interested in a stock exchange listing or would consider other alternatives.

Some Toshiba investors are not convinced that a breach will create value, said shareholder sources 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 companies,” said Fumio Matsumoto, chief strategist at Okasan Securities.

“But if there is no such business, the breach creates only three math-sized companies.”

The once historic 146-year-old conglomerate has swung from crisis to crisis since an accounting scandal in 2015. Two years later, it secured a $ 5.4 billion cash injection from 30-plus foreign investors that helped avoid a delisting, but recovered activist shareholders, including Elliott Management, Third Point and Farallon.

Tensions between Toshiba’s management and foreign shareholders have dominated the headlines since then, and in June an explosive shareholder engagement survey concluded that Toshiba worked with the Japanese Ministry of Commerce to block investors from gaining influence at last year’s shareholders’ meeting.

Earlier on Friday, Toshiba released a separately commissioned report which found that executives, including the former CEO, had behaved unethically, but not illegally.

It concluded that Toshiba was overly dependent on the Ministry of Commerce, adding that problems were also caused by its “excessive caution towards foreign investment funds” and “its unwillingness to develop a good relationship with them.”

Shares in Toshiba ended 1% lower after the management report. Details of the strategic review were announced after the market closed.

After recovering from a downturn due to the COVID-19 pandemic, Toshiba reported operating profit in the second quarter approximately doubled to 30.4 billion yen ($ 266 million).

($ 1 = 114,2200 yen)

Reporting by Makiko Yamazaki; Editing Edwina Gibbs

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