Toshiba three-way split in doubt as investors push for private equity talks

Toshiba is reconsidering a plan to split itself into three companies, as investors continue to push the Japanese industrial conglomerate towards resuming buyout talks with private equity firms.

According to two people briefed on the matter, Toshiba is revising a contentious restructuring plan that it announced in November following a strategic review forced on the company after a series of clashes with investors.

Several of Toshiba’s largest investors — a register packed with hedge funds and activists — have protested strongly against the proposed three-way split.

Its second-biggest shareholder, the Singapore-based fund 3D Investment Partners, called on Toshiba in January to convene an extraordinary meeting to vote on the split and revive talks with potential buyers to take the entire conglomerate private. That request, according to people close to the matter, has not been withdrawn.

Toshiba’s revised plan, which will be outlined to investors next week, will involve the sale of Toshiba’s 60 per cent stake in an air conditioning joint venture to its US partner in that business, Carrier Global. The sale, according to a Friday report in the Nikkei, would value Toshiba’s stake at roughly ¥100bn ($867mn).

Toshiba then envisages a two-way split whereby its devices businesses are spun off and listed separately as one company, leaving its infrastructure and remaining interests in semiconductors as the second company.

A two-way split would be considerably simpler than a three-way separation, with investors suggesting that the revision may have been aimed at sparing Toshiba a complex voting process where management’s plans might, once again, be blocked by shareholders.

Late in 2021, shareholders who collectively held more than 30 per cent of Toshiba’s stock told the Financial Times that they would vote against the three-way split if given the option.

“It is true that we are considering improving our restructuring scheme and reviewing our portfolio as options,” said Toshiba, adding that an announcement would be made on Monday when chief executive Satoshi Tsunakawa explains the conglomerate’s management strategies to investors.

Toshiba’s restructuring plan emerged from the chaos that followed a preliminary approach to Toshiba’s management last year from the private equity group CVC proposing talks on taking the troubled conglomerate private. After the resignation of Toshiba’s then chief executive in April and a bruising annual meeting in June, the company convened a strategic review committee to examine its options.

The review concluded that, after years of accounting scandal, a brush with bankruptcy and the sale of its prized memory chip business, Toshiba’s best option was to split itself into an electronic devices business, an infrastructure group and a holding company for its remaining interests in semiconductors.

But large investors accused the review committee of deliberately downplaying the viability of a private equity buyout of the entire company, with a significant number warning that they would once again vote against management at the 2022 AGM in protest. Shareholders told the FT in December they believed that at least two buyers had discussed valuations for a take-private option that were at least 25 per cent higher than Toshiba’s share price at that time.

Although the strategic review committee concluded that a take-private deal was not viable, private equity firms that had previously engaged with Toshiba said they had since been contacted by bankers for informal talks on other options. These would include the sale of individual assets from Toshiba’s sprawling portfolio of businesses.