TOKYO (REUTERS) - Toshiba's second-largest shareholder on Wednesday (Nov 24) objected to the Japanese conglomerate's plan to split itself into three companies and called on it to instead solicit offers from potential buyers.
Singapore-based hedge fund 3D Investment Partners, which owns more than 7 per cent of Toshiba, laid out its objections in a three-page letter to the company's board, becoming the first major shareholder to formally oppose the break-up plan outlined this month.
The letter, seen by Reuters, highlights shareholder discomfort over Toshiba's proposal - an unease reflected in the company's recent weak stock performance - and raises the possibility that the break-up may struggle to win approval at a shareholder meeting early next year.
The proposed break-up is "extremely unlikely" to resolve any of Toshiba's current problems and "is instead very likely to create three underperforming companies in the image of today's Toshiba", 3D Investment said in the letter.
Some other hedge fund shareholders have also told Reuters, on condition of anonymity, that they were disappointed that Toshiba had turned down the idea of going private.
In its letter, 3D Investment said Toshiba should "open a formal process, develop a compelling plan for each of the businesses, provide detailed diligence materials and management meetings to interested financial and strategic parties, encourage and enable stretch proposals from those parties and evaluate the best path forward".
Toshiba launched its strategic review after pressure from investors, following a governance scandal over the management's alleged collusion with Japan's Trade Ministry to pressure foreign shareholders.
During the five-month review, Toshiba's review committee held talks with six private equity firms, which sources said included KKR & Co and Brookfield, seeking strategic ideas including going private.
While the review committee never conducted an auction process with due diligence for a possible sale, it has said talks with private equity firms suggested that potential offers were "not compelling relative to market expectations".
The review committee, which consists of five external board directors, has said it did not receive any bona fide proposals to take the company private. The idea of going private, it has said, raised concerns inside Toshiba.
However, in 3D Investment's letter - which was also addressed to the review committee - the hedge fund criticised the committee for what it said was a failure to ask for proposals for the sale of Toshiba, or the partial disposition of some of its businesses.
3D Investment, founded by former Goldman Sachs banker Kanya Hasegawa in 2015, was one of dozens of foreign hedge funds that participated in a US$5.4 billion (S$7.4 billion) capital injection that Toshiba received during a crisis stemming from the bankruptcy of its nuclear power unit in the United States in 2017.
Founded in 1875, Toshiba plans to house its energy and infrastructure divisions in one company, while its hard disk drive and power semiconductor businesses will form the backbone of another. A third will manage Toshiba's stake in flash-memory chip company Kioxia Holdings and other assets.
Shares of Toshiba have dipped more than 4 per cent since the plan was first reported by the Nikkei business daily on Nov 8.
The stock was down 1.2 per cent at 4,688 yen versus a 0.7 per cent decline in the benchmark Nikkei index early on Wednesday.