A fund that holds around 7 per cent of Toshiba stock – making it the company's second-largest shareholder – has opposed the Japanese industrial giant's proposed split into three companies, and called for a review of alternative strategies.
A scathing open letter from 3D Investments begins by declaring that the company's "failures of execution and misallocation of capital" are compounded by the board's lack of transparency and have collectively damaged the company's credibility.
The investment firm said Toshiba's strategic review committee (SRC) failed in its attempt to find a plan, with an 8 per cent stock price plunge evidence that the plan to split the company is not a good idea.
"By its own admission, the SRC did not provide detailed information to, or conduct management meetings with, private equity firms, nor did it ever ask for or receive proposals for a sale of the Company or a partial disposition of businesses. It appears from the SRC report that no strategic partners or acquirers were contacted either," 3D Investments fumes.
The firm's main beef seems to be that the SRC and board were too quick to dismiss a strategic partnership with a global private equity firm – and did so to avoid the inconvenience of oversight by such entities.
"So rather than examining the full range of possibilities and reporting on those possibilities to shareholders, the SRC has instead decided that the status quo, with some minor shuffling of businesses into different corporate entities, is the prescription for success, despite years of evidence to the contrary," argues the letter.
3D Investments said the plan as it stands will result in "three underperforming companies in the image of today's Toshiba." But not all hope is lost – the equity biz believes with some more robust changes Toshiba could yet improve its performance and reputation.
The firm urged the SRC and board to go back to square one:
We therefore encourage you to 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 for Toshiba in light of the competitive proposals that we are certain will be submitted.
The plan that the fund so furiously opposes would see Toshiba persist as a vendor of printers, barcode kit, and point-of-sale tech, and sell 40 per cent of the stake it holds in memory maker Kioxia – a 2019 Toshiba spin-off. Profits from Kioxa would be disbursed to shareholders.
Another subsequent company would focus on devices, and inherit Toshiba's semiconductor and hard drive businesses. A third company would provide power generation, IT solutions, batteries, and other infrastructure-related products and services.
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Toshiba's interim CEO, Satoshi Tsunakawa, justified the decision at the time of the announcement earlier this month by saying it would "[remove] complexity" and allow for more focused management.
While obviously not everyone is happy about the split – and some are more vocal about this than others – Toshiba made the decision after a reckoning with investors over its culture and scandals. The last straw for some was allegations over management's claimed collusion with Japan's trade ministry to bully shareholders into voting for their preference. The firm has denied these allegations.
A five-month review followed that included talks with private equity firms. Toshiba said any potential offers were "not compelling relative to market expectations." ®