Toshiba in limbo after rejection of proposals over future

TOKYO • Toshiba shareholders have rejected proposals from both management and activist shareholders for the firm's future, putting the 146-year-old Japanese conglomerate in a state of limbo after months of wrangling over its next steps.

A proposal to split the company in two, put forward by management, failed to get the simple majority it needed to be approved. A separate proposal, by second-largest shareholder 3D Investment Partners, to reconsider alternative options including a sale was also voted down at a meeting of shareholders in Tokyo yesterday.

While the votes are not legally binding, the failure of both proposals underlines the division among shareholders and management over the best course of action for the troubled firm.

Toshiba shares erased gains and fell as much as 5.1 per cent in the afternoon session in Tokyo following the vote.

The company may continue with plans for the two-way split despite the defeat, ahead of a binding vote next year. Chief executive officer Taro Shimada said the firm will consider all options to improve corporate value.

Last month, Mr Satoshi Tsunakawa, a former CEO who crafted the proposed split plan, said Toshiba may make adjustments to its proposal if it failed to gain majority shareholder support. The firm had already switched from a three-way to a two-way split last month.

"It will be back to the drawing board," Mr Mio Kato, an analyst at LightStream Research, said before the vote on the possibility of both proposals being rejected. "I think there will be a lot more jawboning and more aggressive demands of management."

Toshiba has been locked in a battle with hedge funds and activist shareholders over its future, with the funds arguing that the conglomerate should be sold to private equity, an idea which Toshiba's management rejects.

Instead, the firm proposed spinning off its device unit while selling non-core business units in areas such as lifts and lighting.

In an interview with Bloomberg last month, Mr Tsunakawa said the risks of going private are impossible to ignore.

He said Toshiba will lose orders from public entities ranging from utilities to local governments if it goes private through a sale to a fund, depriving it of an important source of cash flow.

The firm will also be forced to sell sensitive technology operations in areas such as nuclear, defence and cyber security, all of which are essential to its sustainable growth, he said.

Some argue that Toshiba's battle with its activist investors is a test case for how Japan Inc functions with shareholder capitalists in the country's US$6 trillion (S$8.15 trillion) stock market. Rarely has there been such opposition to a company's plan.

Once one of Japan's most iconic companies, Toshiba has lurched from one disaster to another over the past seven years, in developments that created a lack of trust between shareholders and management. It started with an accounting scandal in 2015 that devastated its profits and led to a companywide restructuring.

The subsequent unravelling of a costly foray into the nuclear power business in America led to a US$6.3 billion write-down and saw it teeter on the edge of delisting. It was forced to sell its crown jewel memory-chip unit and offer stock that was snapped up by activist investors, giving them an outsize presence on the shareholder register.

When Effissimo Capital Management sought in 2020 to put one of its co-founders and other candidates on Toshiba's board, shareholders rejected it.

Suspicious about how the vote was conducted, Effissimo proposed that independent investigators be appointed to look into it, winning a landmark shareholder vote last year.

The investigators' report alleged that Toshiba management worked hand in hand with government allies to sway the outcome, findings that four Toshiba board members described as "deeply disturbing".

BLOOMBERG