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Toshiba to become Threeshiba – company split to spur growth as strife persists

One company for devices, one for office kit, another for infrastructure, batteries & tech services, Kioxia stake to be sold

Japanese industrial giant Toshiba has announced it will divide into three companies, and that its governance needs a thorough overhaul.

Toshiba itself will persist in the form of Toshiba Tec Corporation – a vendor of printers, barcode kit, and point of sale tech. The firm will also sell the 40 per cent stake it holds in memory-maker Kioxia, which Toshiba spun out in 2019. Proceeds will be disbursed to shareholders.

Another of the companies has been dubbed "Device Co." and will inherit Toshiba's semiconductor business – both finished products and manufacturing – and the hard disk drive business. Device Co. should start life with annual revenue of around $6.7 billion.

The third business, provisionally monikered "Infrastructure Service Co.", gets to play in power generation, transmission and distribution, renewable energy, energy management, systems solutions for public infrastructure, railways and industry, building energy-saving solutions, and IT solutions for government agencies and private companies. And batteries, too. Infrastructure Service Co. has been positioned as just the sort of partner governments need as they set about decarbonising their economies and should have around $18 billion of annual revenue once separated from Toshiba.

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Toshiba says it has made these changes to let each business "significantly increase its focus and facilitate more agile decision-making and leaner cost structures".

Satoshi Tsunakawa, Toshiba's interim CEO, president, and chair, said the change is an example of Toshiba – yet again – getting ahead of global trends.

"We are convinced that the business separation is attractive and compelling; it will unlock immense value by removing complexity," he said, adding "it enables the businesses to have much more focused management, facilitating agile decision making, and the separation naturally enhances choices for shareholders."

The bushel of statements Toshiba issued to announce the split makes a few mentions of the fact the new structure was recommended by a Strategic Review Committee (SRC) appointed in May 2021, after the company rebuffed a takeover attempt by private equity firm CVC.

Toshiba's then-president and CEO Nobuaki Kurumatani stood down once CVC had been repelled, and Toshiba is yet to appoint a permanent successor. The decision to split the company doesn't necessarily relieve pressure to find a new boss, as the Committee also recommended Toshiba's board "undertake immediately seven clearly defined commitments to enhance corporate value – including share buybacks and asset dispositions – during the preparation phase of the Separation Plan".

"Please know that this is by no means the end of the work of the SRC," reads the Committee's statement. "We shall continue to oversee the preparation of the Separation Plan until the shareholders vote on it at the proposed EGM in the first quarter of next calendar year." Completion of the plan is scheduled for 2023.

It's not just the SRC calling for change at Toshiba. Also revealed [PDF] last Friday were the findings of a Governance Enhancement Committee set up in the wake of the ousting of board chair Osamu Nagayama over a corruption scandal.

The Governance Enhancement Committee calls for a thorough overhaul of Toshiba's governance, including appointment of leaders who understand its concepts and practise them. The Committee also called for Toshiba to reduce dependence on regulators and Japan’s Ministry of Economy, Trade and Industry.

Toshiba's been embroiled in strife of this sort since a 2015 accounting scandal, which was followed further problems in 2017 when massive losses in its nuclear power subsidiary led to further executive resignations. Even Kioxia has had troubles, with a stalled IPO bringing further pain.

The company tried to position last Friday's slew of announcements as a new beginning, with Q2 2021 results showing six per cent year-over-year-revenue growth helping things along.

But one of the company's biggest shareholders – Effissimo Capital Management – has signalled it may not support the restructuring plan despite being one of the loudest voices calling for Toshiba to change its ways. ®

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