Toshiba shareholders reject its spin-off and predict more turbulence in the Japanese giant

The rejection expressed this Thursday by the shareholders of Toshiba to the spin-off plans proposed by the directive augurs more turbulence in the convulsive process of reform of the Japanese electronics giant, immersed in a crisis of profitability. The shareholders of the Japanese conglomerate participated this Thursday in an extraordinary meeting in which the plan was put to a vote, which did not obtain the minimum support of 50% sought.

The CVC fund offers more than 20,000 million dollars for Toshiba

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Although the consultation is not binding, since any restructuring plan must be approved at the annual general meeting that will take place in June 2023, this Thursday’s consultation was seen as a kind of vote of confidence for the volatile board, which could return to be replaced and to have to start management from scratch. “We are going to study all the alternatives to be able to improve the value of the company,” said the president and chief executive officer (CEO) of Toshiba, Taro Shimada, who saw the opportunity as a measure of confidence among shareholders, after knowing the result.

Months of gestation

The restructuring plan was raised in November 2021 with the vision of dividing the company into three companies, one specialized in infrastructure, another in electronic devices and another in the rest of the assets, including the Kioxia memory chip subsidiary.

Estivo driven by Satoshi Tsunakawa, who took over as CEO in April last year to replace Nobuaki Kurumatani, after irregularities in his re-election and with the waters with activist investors very rough due to the failed purchase attempt by the investment fund British CVC Capital Partners.

The spin-off was revised in February to be reorganized into a split into two companies, infrastructure and electronics, although the change did not please activist investors, already upset with the initial proposal, and Tsunakawa would end up resigning a few weeks later, being replaced by Shimada.

The current executive director advocated moving forward, arguing that the spin-off would help streamline governance and distribute capital more appropriately to each business. Toshiba’s three main shareholders, equity funds Effissimo Capital Management, 3D Investment Partners and Farallon Capital Management, all activist investors with a recent history of conflict with management and who together account for 20% of the vote, had long shown their opposition.

Also the advisory firms Institutional Shareholder Services (ISS) and Glass Lewis, which predicted the result of the vote. 3D Investment Partners had presented an alternative proposal that advocated contemplating purchase offers and that had the support of Effissimo and Farallon, but that was also rejected on Thursday.

Shimada has repeatedly said that one of his goals is to regain the trust of shareholders (of whom about half are foreigners), deeply divided and skeptical of management after years of unsuccessful restructuring, scandals and dwindling financial results.

Mistrust in management

The spin-off plan was intended as an attempt to appease investors frustrated by unproductive efforts to boost the company’s growth and corporate value, but it could end up being a further polarizing element.

Toshiba closed its 2020 fiscal year (ended March 31, 2021) with a net profit of 113,981 million yen (about 850 million euros), better than the loss of 114,633 million yen (860 million euros) of 2019 but far from the trillion yen (7,580 million) of 2018, after its “rescue operation”. The company has been immersed for several years in a tumultuous conflict between management and activist investors from whom it received capital to avoid the bankruptcy of its nuclear subsidiary, Westinghouse Electric, in 2017, which would finish squandering the conglomerate.

Toshiba’s sales, which amounted to 3 trillion yen (22,870 million euros) in the 2020 financial year, have been progressively declining since 2016, when they were 25% higher. The values ​​of the Japanese conglomerate ended today with a decrease of 0.5% on the Tokyo Stock Exchange after knowing the result of the extraordinary meeting.

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