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Activist investors join Toshiba board to pave the way to sale

Appointments said to 'strengthen the alignment between shareholders and management'

Toshiba has appointed two directors from activist hedge funds to its board in a move that could tip the balance in favor of a sale that would take the company into private ownership.

Shareholders of the Japanese conglomerate voted their support for all 13 director nominations recommended by the company during the annual general meeting of shareholders held on June 28 in Tokyo.

This included two directors from hedge fund investment companies, a contentious move that led to the resignation of external director Mariko Watahiki, a former high court judge, who reportedly objected to their appointment on the grounds that it skewed the membership of the board towards activist investors.

The two directors in question are Eijiro Imai, managing director at Farallon Capital Management, and Nabeel Bhanji, senior portfolio manager at Elliott Management. Also coming from the investment world is Akihiro Watanabe, a managing director at US investment bank Houlihan Lokey, who has been appointed chairman of the board.

In a statement [PDF] from Toshiba's management before the vote, the company said that having Imai and Bhanji join the board would "strengthen the alignment between shareholders and management" as the two were representatives of major shareholders, and the company believed they would prove useful in the evaluation of the various strategic alternatives facing the company from that perspective, and would "facilitate transparency of the evaluation process."

According to Reuters, Farallon and Elliott together hold about 10 percent of Toshiba, with activist shareholders estimated to own about a quarter of the company's stock in total.

Toshiba announced back in April that it was considering proposals that would take the company private following numerous scandals and pressure from various investor groups to take steps to restore trust following these.

Last week it was reported that Toshiba had received 10 potential offers to buy up the company, eight of which would take the company private, with some estimates valuing the deals at up to $22 billion. Shares in Toshiba were said to have risen as much as 6.5 percent following the news.

Earlier reports had identified a number of potential investors interested in buying some or all of Toshiba, including Bain Capital, currently the largest stakeholder in spinout storage company Kioxia, CVC Capital Partners, and KKR.

Last year, Toshiba was hit by its third major corporate governance scandal in six years, with allegations that the company had conspired with the Japanese government to minimize the influence of foreign investors. Events such as these led to the pressure from many shareholders for a reorganization of the company, resulting in the current moves towards a sale. ®

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