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Activists get their moment in Japan with $ 21 billion offer for Toshiba

(Bloomberg) – The surprise takeover bid for Toshiba Corp. is a palpable demonstration of the growing influence in Japanese companies of activist investors, who have gone from largely helpless bystanders to kingmakers in space of a few years. Capital Partners, although still in its infancy, comes just weeks after Toshiba CEO Nobuaki Kurumatani lost a historic shareholder vote, forcing an independent investigation into alleged voting problems at its general meeting annual last year. , who was barely re-elected at last year’s meeting and is considered unlikely to survive another. The vote was called by Toshiba’s largest shareholder, Singapore-based secret hedge fund Effissimo Capital Management. Any deal for Toshiba faces legal hurdles, and analysts say investors like Effissimo would likely insist on a move. substantial premium over Tuesday’s closing price. But the episode shows that the influence of activism in Japan is becoming hard to deny. “There have been false dawns before,” said Justin Tang, head of Asian research at United First Partners in Singapore. “But activism is taking hold now.” Flexing Muscles CVC has offered about 5,000 yen per share in its buyout proposal, according to a Toshiba executive. An offer at this level would value Toshiba at around 2.28 trillion yen ($ 20.7 billion) and represent a 31% premium until its last close before the announcement of the offer emerges, the data compiled by Bloomberg show. takeover since 2013, and the largest acquisition ever recorded by CVC. Toshiba’s board of directors plans to form a special committee to review the proposal, said the executive, who asked not to be identified to discuss confidential information. In a deal, Toshiba shares rose from their daily limit of 18% to 4,530 yen per share at the close on Wednesday in Tokyo. The title gained up to 5.7% more on Thursday. “Considerable value would be created just by simplifying ownership and clarifying governance by making the company private,” said Nicholas Benes, a corporate governance expert in Japan. “Precisely because of this, one would really hope that this is a case where Toshiba will be open to other offerings, both by other private equity firms as well as by strategic acquirers.” Activist investors have become increasingly strong in Japan in recent years, as corporate governance reforms promoting shareholder value have meant that management can no longer dismiss this pressure. Tokyo Dome Corp. will be delisted this month after it was acquired by a White Knight last year to fend off pressure from activist investor Oasis Management Co. Once a legendary name in Japan, Toshiba has largely disappeared from its days as glory after years of management missteps and scandal. . The conglomerate invented flash memory three decades ago, but was forced to sell most of its prized chip business in 2018 due to losses in its nuclear operation. The deal led to an infusion of liquidity – but also a large contingent of noisier shareholders. Singapore-based 3D Investment Partners last week became the latest investor to say it could make management proposals, raising its stake to over 7%. “Any success of this nature will likely snowball and lead to more business,” said Damian Thong, analyst at Macquarie Group Ltd. “There is a feeling that a large part of Japan’s industrial base is inefficiently managed, resulting in an apparent undervaluation of Japanese conglomerates.” Kioxia Options An open question for Toshiba is the future of Kioxia Holdings Corp., its former memory chip division in which it still has the largest stake. Kioxia is focused on an IPO as early as this summer as part of an IPO that could value the company at more than $ 36 billion, Bloomberg News reported last week. Alternatively, Micron Technology Inc. and Western Digital Corp. are both interested in acquiring the company, the Wall Street Journal reported. If Toshiba gets a reasonable market valuation for Kioxia and its core businesses attract multiples similar to those of its Japanese peers. , Thong said he sees the possibility of creating more than 1 trillion yen in shareholder value. This would imply a Toshiba share price of over 6,500 yen per share, compared to the HVAC offering at 5,000 yen each. LightStream Research’s Miio Kato sees a low possibility of the deal going through under current terms and expects to volatile trading for Toshiba shares in the short term depending on how things go. Toshiba shareholders, especially activists, will want a “pretty high price,” he wrote in a note posted on SmartKarma. Given the sensitivity around several of Toshiba’s brushy areas, including its deep involvement in the dismantling of the destroyed Fukushima Dai-Ichi nuclear power plant, the government’s approval would be required for the deal, the secretary said on Wednesday. Chief of Staff, Katsunobu Kato. It is not known whether a foreign company such as CVC would be allowed to take over Toshiba. The relationship between CVC and Toshiba executives – with Kurumatani, former president of Japan and external director Yoshiaki Fujimori still employed by the company – has also raised eyebrows. “It could just be an attempt to buy time for Kurumatani,” Kato said. Updates with share transfer in eighth paragraph) For more articles like this please visit us at bloomberg.com Subscribe now to stay ahead with the most trusted source of business news. © 2021 Bloomberg LP