The century-old Toshiba’s capital story is coming to a close.
On September 21st, Toshiba Corporation announced that a consortium led by the Japanese domestic fund “Japan Industrial Partners” (JIP) has acquired a cumulative stake of over two-thirds, specifically 78.65%, of the company through a takeover bid. Toshiba plans to delist as early as December 2023, bringing an end to its 74-year history as a publicly traded company.
It is understood that after a series of events including financial fraud, losses in the nuclear power sector, and divestment of businesses, Toshiba has experienced increasingly poor management and long-term turmoil in recent years, ultimately leading to its path toward delisting and potential recovery. At the same time, Toshiba’s semiconductor business, known as Kioxia, has incurred significant ongoing losses and has recently been rumored to be in advanced merger negotiations with Western Digital.
It can be said that Toshiba’s delisting marks a somewhat sad moment for the pinnacle of Japanese manufacturing, and it will also become a significant watershed event in Toshiba’s 148-year history. However, delisting does not equate to a complete downfall. Toshiba still holds a strong competitive position in infrastructure, electronic devices, and semiconductors. Its future direction will depend on the decisions made by its leadership, but prudent strategic planning will undoubtedly be necessary.
Taking an Important Step Towards a Brand New Future
Undoubtedly, the consortium led by JIP, comprising over 20 Japanese companies, has successfully gained control, clearing the path for the privatization and delisting of Toshiba.
According to foreign media reports, the acquisition initiated by JIP took place from August 8th to September 20th, with a purchase price of 4,620 Japanese yen per share, totaling 2 trillion Japanese yen (approximately 97.4 billion Chinese yuan). Currently, they hold a 78.65% stake, surpassing the minimum threshold of 66.7%. In terms of independence, JIP plans to retain Toshiba’s CEO and its management team, ensuring separate business management.
It’s worth mentioning that while JIP may not be widely known internationally, the consortium has been involved in the separation and restructuring of Japanese corporate groups, including Olympus’ camera business and Sony’s laptop business.
The head of Toshiba’s public relations department stated, “We expect to hold an extraordinary shareholders’ meeting in late November to complete the necessary procedures. Afterward, the stock will be designated as ‘consolidated stock.’ The delisting process will be completed in approximately a month.”
At that point, Toshiba will conclude its 74-year history as a publicly traded company, dating back to 1949, marking the end of a prolonged period of adversity.
Since the exposure of an accounting scandal in 2015 that plunged Toshiba into a financial crisis, the company has struggled with management turmoil and operational difficulties. Subsequently, Toshiba’s attempts at merger and restructuring plans have repeatedly failed. Analysts suggest that the delayed determination of Toshiba’s restructuring plans is closely related to the sensitivity of technology held by Toshiba and the cautious approach of Japanese stakeholders toward selecting investors.
By 2017, in an effort to alleviate its debt crisis, Toshiba introduced external capital through a 600 billion Japanese yen capital increase, avoiding delisting. However, some experts believe that the involvement of overseas shareholders in the capital increase affects Toshiba’s operations.
In order to shed its burdens and streamline operations, in late 2021, news emerged that Toshiba decided to split into three companies, each focusing on new energy and infrastructure, hard drives and semiconductor business, and the production of flash memory chips. However, after the split plan was rejected by shareholders, in March 2022, Toshiba began seeking acquisition offers to separate from overseas investors, eventually accepting the acquisition bid from the JIP consortium in March of this year.
Following the acquisition bid from JIP, Toshiba’s CEO, Taro Shimada, stated in a declaration, “We are deeply appreciative of the understanding shown by many shareholders regarding the company’s position. Toshiba will now take a significant step forward into a brand-new future alongside our new shareholders.” Post-privatization, Toshiba remains committed to “doing the right things” to enhance corporate value.
In reality, Toshiba had been struggling to sustain itself in the capital market. According to the rules of the Tokyo Stock Exchange, Toshiba had to resolve its years-long negative net worth situation, or it would face forced delisting. To cope with this, Toshiba had been selling assets to barely stay afloat, but it struggled to regain the confidence of most investors and frequently clashed with overseas capital partners.
“Activist shareholders and Toshiba have been entangled for years, and this acquisition frees both parties from their mutual constraints,” noted Travis Lundy, an analyst at Quiddity Advisors. “I anticipate that the prospect of management and new ownership realignment will boost morale. However, for success, the management will need to tell investors a better story.”
The “Abandoned” Semiconductor Business
From the current acquisition progress, it appears that the JIP consortium is poised to gain control of Toshiba. According to foreign media reports, as of the 27th, starting from the settlement, JIP will officially become Toshiba’s parent company and its largest shareholder. Among the members that make up this consortium are not only financial institutions such as Sumitomo Mitsui and Mizuho but also semiconductor manufacturers like Renesas and OLS.
Revealed information indicates that Renesas Semiconductor will invest up to 300 billion Japanese yen (approximately 2.1 billion US dollars) in this proposal, making it the Japanese company with the highest investment in this acquisition. Some analysts suggest that since Japan needs further consolidation to strengthen its semiconductor industry, Toshiba’s privatization provides an opportunity for industry consolidation.
However, there is skepticism regarding whether Toshiba will strengthen its collaboration with the aforementioned semiconductor manufacturers. Economic observer and analyst in the electronics and IT industry, Shaojiang Ding, believes that this may not be the case. He points out, “After Renesas’ investment, Toshiba may accelerate the divestment of its entire semiconductor business. Currently, Toshiba’s involvement in the semiconductor business is only as a shareholder (Kioxia), and they might directly sell these shares for liquidation.”
As per Toshiba’s announcement in June 2020, the company did not intend to remain in the storage market and planned to gradually monetize its holdings in Kioxia to ensure company earnings. However, subsequent reports indicated that Kioxia planned to go public on the Tokyo Stock Exchange and explore merger transactions with Western Digital.
“In the future, Toshiba may entrust its semiconductor business to more mature and competitive brands, thereby focusing on core businesses like infrastructure, while seeking new investors and relisting. This could be the strategic direction for its revival,” stated Shaojiang Ding.
It is known that Toshiba was once a significant chip manufacturer in Japan. In 2000, its semiconductor sales were second only to the U.S. chip giant Intel, ranking second globally. By 2008, Toshiba was third, behind Intel and Samsung, but ahead of Texas Instruments and STMicroelectronics. However, in recent years, the global semiconductor landscape has become increasingly competitive, with companies like TSMC and Samsung significantly strengthening their positions, leaving Toshiba’s semiconductor business lagging behind.
In 2018, facing multiple challenges, Toshiba divested its semiconductor business, selling it to a consortium of companies, including U.S. private equity firm Bain Capital, for approximately 2 trillion Japanese yen. This divestment led to the creation of an independently operated company, Kioxia. Bain Capital held a 49.9% stake in Kioxia, while Toshiba retained a 40.2% stake.
However, due to the downturn in the global semiconductor memory market, Kioxia has faced difficulties in recent years, with consecutive substantial losses and financial deficits, leading to considerations of layoffs. Against this backdrop, there have been new developments in the collaboration between Kioxia and Western Digital. Insiders recently revealed that at least three banks are planning to provide $14 billion in loan refinancing for the merger between Kioxia and Western Digital, potentially accelerating their consolidation process.
Some analysts believe that Toshiba still holds approximately 40% of Kioxia’s shares. During Toshiba’s privatization process, the buyers will need to reassess the valuation of these holdings, which is likely to impact Western Digital’s acquisition plans.
Future Development Goals Still Face Challenges
As a former representative of Japanese manufacturing, Toshiba has wielded significant influence in various fields, including consumer electronics, electrical, energy, infrastructure, and semiconductors. It once pioneered many “firsts” in Japan, including the first radar, the first transistor television and microwave oven, the first color video telephone, the first laptop computer, and the first DVD player.
During its heyday, Toshiba’s consumer electronics business accounted for one-third of its total revenue, making it one of Japan’s “big three” alongside Sharp and Panasonic in the white goods sector. After making a name for itself in consumer electronics, Toshiba expanded rapidly into areas such as semiconductors, heavy machinery, medical equipment, rail transportation, and elevator manufacturing.
However, after the headlong rush, what remains is a sense of regret.
Over the past decade, Toshiba has struggled with razor-thin profit margins and a significant decline in performance following the collapse of the electronics industry and the failure of its nuclear energy business. It was embroiled in a scandal involving eight years of financial misconduct, which led to a sharp drop in its stock price and a 40% reduction in market value, pushing it to the brink of bankruptcy. In the midst of this crisis, Toshiba chose to survive by selling off assets such as consumer electronics and laptops to companies like Midea and Sharp, authorizing domestic sales of its white goods division to Skyworth, and divesting its stake in the storage chip company. Instead, it focused on infrastructure, motors, and the semiconductor sector.
Now, as it nears completion of its privatization following a series of maneuvers in the capital markets, Toshiba’s future will be guided by the principle of “doing the right things.” According to Toshiba, a stable shareholder base will aid the company in pursuing a long-term strategy centered around high-profit digital services.
Furthermore, the management of the JIP consortium stated in a statement released last month that once the transaction is completed, “Our goal is to establish a stable management structure for Toshiba and promptly implement new growth strategies.”
“In particular, we intend to further develop each business by better responding to Toshiba’s customer needs, implementing growth strategies through the development of new technologies, and providing a more valuable workplace for Toshiba executives and employees.”
Regarding the specific business path, Shaojiang Ding pointed out that Toshiba’s focus after privatization will undoubtedly be on core areas such as infrastructure, including power, urban transportation, and water supply. It will also work on rebuilding its reputation in the capital markets and seek new investment and financing opportunities.
According to industry analysts, although Taro Shimada mentioned in the initial press conference of this acquisition that he aims to rebuild Toshiba as a globally contributing company and set a sales target of 5 trillion Japanese yen by 2030, which is 1.5 times the 2022 sales figure, achieving this goal will be challenging. This is because Toshiba has already abandoned high-revenue businesses such as medical devices and semiconductor storage.
Japanese media reports also suggest that while JIP aims to relist Toshiba within 3 to 5 years, achieving this goal will be challenging due to Toshiba’s weakened financial foundation.
However, some perspectives suggest that Toshiba, which had long been plagued by operational turmoil due to disagreements with certain shareholders, has undergone a change in its shareholder structure through this acquisition. Furthermore, the management’s approval of the various proposals put forward by the JIP consortium suggests a positive outlook for the company’s medium to long-term development.
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