A Fallen Conglomerate, Toshiba Is Fighting for Its Survival and Wants to Avoid Dismantling.
Several investment funds are on the lookout.
The long and hard battle seems never to end for Toshiba. The moment when the famous Japanese conglomerate will pass into the hands of investment funds has never seemed so close.
On June 2, 2022, Toshiba acknowledged having received “eight takeover proposals and two capital alliance offers”, while specifying that they are not “binding”. The management of the giant intends to evaluate “carefully” the value and feasibility of each of these offers, and select the most attractive “as soon as possible” after the general meeting of its shareholders on June 28.
Toshiba's problems date back to 2015, with the discovery of accounting malpractice that increased its profits by more than 1 billion dollars. A large part of the management was then renewed. The new management launched in the wake of a vast restructuring. More than 4 billion dollars of losses are noted in the 2015 accounts. Then Toshiba had to make provisions of nearly 6 billion dollars to take into account the difficulties of its American subsidiary specializing in nuclear power, Westinghouse, before the bankruptcy of the said subsidiary (Chapter 11 bankruptcy protection) in 2017.
At the same time, the company's managers - three general managers who succeeded each other between 2015 and 2021 - divested large parts of the business. Laptops, televisions, and medical devices are thus leaving the group's scope. In all, the turnover is cut by more than 40% between 2015 and 2021.
Last chance operation before a possible dismantling for Toshiba?
This is not enough to satisfy shareholders. Since the beginning of the group's difficulties, several activist funds, particularly Anglo-Saxon, have entered the capital of Toshiba. And they are pushing for more drastic measures.
The management has tried to calm down the most agitated of its shareholders by presenting several strategic options. First by planning a split into three separate entities at the end of 2021. Then into two entities only - electronics products on one side and industrial activities on the other. This confirmed what we had seen at the end of 2021 with the end of the General Electric conglomerate. A new era is beginning with pure players specialized in their fields.
Neither of the two projects presented by Toshiba's management convinced the activist funds, nor even the shareholders as a whole, as 60% of them rejected the second scenario in February 2022.
Somewhat forced, in April 2022, Satoshi Tsunakawa, the new CEO appointed in 2021, considered for the first time the possibility of a total sale of the company to one or more players. This option has met with great success, given the number of proposals received.
Investment funds such as Blackstone, KKR, or CVC Capital Partners were mentioned in the press. The fund Bain Capital has made its interest official. It knows the company and the Japanese constraints well. In 2018, he took control, including a public fund Nippon, the memory-flash division of Toshiba for $18 billion.
The takeover is likely to be a very complex operation. The Japanese authorities will indeed have their say in the operation. The conglomerate is present in strategic areas, such as the arms industry or nuclear. It will undoubtedly be necessary to join forces with Japanese investors to achieve this.
In announcing the expressions of interest, the leaders of Toshiba have presented a very ambitious strategic plan, which provides for an increase in sales ($ 24 billion for the fiscal year ending in March 2022) of 50% by 2030 and a 2.5-fold increase in operating margin, to 12% eventually. It is a question of convincing future buyers to perpetuate the group, and not to sell it off in pieces.
If Toshiba's managers do not succeed, it would mean the disappearance of a historic company of the Japanese economy, born in 1875 at the very beginning of the economic development of the Archipelago. This looks like a last-chance operation for Toshiba.
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