Activists get their moment in Japan with $28b Toshiba bid

Surprise takeover bid may spark offers for other companies seen as undervalued

Toshiba, once a storied name in Japan, has faded dramatically since its glory days after years of management missteps as well as fraud and accounting scandals. PHOTO: AGENCE FRANCE-PRESSE
Toshiba, once a storied name in Japan, has faded dramatically since its glory days after years of management missteps as well as fraud and accounting scandals. PHOTO: AGENCE FRANCE-PRESSE

TOKYO • The surprise takeover bid for Toshiba is a palpable demonstration of the growing influence in corporate Japan of activist investors, who have gone from being largely impotent onlookers to kingmakers in just a few years.

The offer from CVC Capital Partners, while still in the early stages, comes just weeks after Toshiba chief executive officer Nobuaki Kurumatani lost a landmark shareholder vote, forcing an independent investigation into alleged issues with voting at its annual general meeting last year.

That loss has piled pressure on Mr Kurumatani, who barely won re-election at last year's meeting and is seen as unlikely to survive another. The vote was triggered by Toshiba's largest shareholder, the secretive Singapore-based hedge fund Effissimo Capital Management.

Any deal for Toshiba faces legal hurdles, and analysts say that investors such as Effissimo would likely insist on a substantial premium from its closing price on Tuesday. But the episode shows that the influence of activism in Japan is becoming hard to deny.

"There have been false dawns before," said Mr Justin Tang, head of Asian research at United First Partners in Singapore. "But activism is taking hold now."


CVC offered about 5,000 yen per share in its buyout proposal, according to a Toshiba executive. A bid at that level would value Toshiba at about 2.28 trillion yen (S$28 billion) and represent a 31 per cent premium to its last close before news of the bid emerged, data compiled by Bloomberg shows.

That would make it the largest private equity-led buyout since 2013, and CVC's biggest acquisition on record. Toshiba's board plans to form a special committee to consider the proposal, said the executive, who asked not to be identified.

While there are many hurdles to a deal taking place, Toshiba shares rose by their daily limit of 18 per cent to 4,530 yen per share at the close on Wednesday in Tokyo. The stock gained as much as 5.7 per cent more yesterday.

"Considerable value would be created simply by simplifying ownership and clarifying governance by taking the company private," said Mr Nicholas Benes, an expert on Japanese corporate governance. "Precisely because of that, one would very much hope this is a case where Toshiba will be open to other bids, by both other PE (private equity) firms as well as strategic acquirers."

Activist investors have increasingly been flexing their muscles in Japan in recent years, as corporate governance reforms promoting shareholder value have meant management can no longer dismiss such pressure. Tokyo Dome will be delisted this month after its acquisition by a white knight last year to fend off pressure from activist investor Oasis Management.

Toshiba, once a storied name in Japan, has faded dramatically since its glory days after years of management missteps as well as fraud and accounting scandals.

The conglomerate invented flash memory three decades ago, but it was forced to sell most of its prized chip business in 2018 because of losses in its nuclear-power operation. That deal led to an infusion of cash - but also a large contingent of more vocal shareholders. Last week, Singapore fund 3D Investment Partners became the latest investor to say it may make proposals to management, boosting its stake to more than 7 per cent.

"Any successes of this nature will probably snowball and lead to more activity," said Macquarie Group analyst Damian Thong. "There is a sense that a large part of Japan's industrial base is being run inefficiently, resulting in apparent undervaluation of Japanese conglomerates."


One open question for Toshiba is the future of Kioxia Holdings, its former memory chip division in which it still holds the biggest stake. Kioxia is focused on going public as soon as this summer in an initial public offering that could value the business at more than US$36 billion (S$48.3 billion), Bloomberg News reported last week. Alternatively, Micron Technology and Western Digital are also said to be interested in acquiring the firm, The Wall Street Journal reported.

If Toshiba secures a reasonable market valuation for Kioxia, and its core businesses attract multiples similar to those of its Japan peers, Mr Thong said he sees scope for more than 1 trillion yen of shareholder value creation. That would imply a Toshiba share price of over 6,500 yen per share, against the CVC offer at 5,000 yen apiece.

Mr Mio Kato of LightStream Research sees a low possibility of the deal going through under current terms, and expects volatile trading for Toshiba's shares in the near term, depending on how things develop. Toshiba's shareholders, especially activists, will want a rather "steep price", he wrote in a note published on SmartKarma.

Given the sensitivity around several of Toshiba's businesses, including its deep involvement in decommissioning the wrecked Fukushima Daiichi nuclear power plant, government approval would be required for the deal, Chief Cabinet Secretary Katsunobu Kato said on Wednesday.

It is also unclear if a foreign firm such as CVC would be allowed to take control of Toshiba. The relationship between CVC and Toshiba executives - with Mr Kurumatani a former Japan president and external director Yoshiaki Fujimori still employed by the firm - has also raised eyebrows.

"This could simply be an attempt to buy time for Kurumatani," Mr Kato said.


A version of this article appeared in the print edition of The Straits Times on April 09, 2021, with the headline 'Activists get their moment in Japan with $28b Toshiba bid'. Subscribe