The century-old Toshiba capital story is about to come to an end. On September 21, Toshiba Corporation stated that a consortium led by Japan's domestic fund "Japan Industrial Partners" (JIP) has acquired more than two-thirds of its 78.65% shares through acquisition invitations. Toshiba plans to delist as early as December 2023, ending its 74-year history as a listed company.
It is understood that after experiencing a series of incidents such as financial fraud, nuclear power losses and business fire sales, Toshiba has become increasingly poor in recent years and has long-term management chaos, and finally embarked on the road of delisting and "redemption". At the same time, Toshiba's semiconductor business, Kioxia, has also been experiencing huge losses and has recently been rumored to be intensifying merger negotiations with Western Digital.
It can be said that Toshiba's delisting is to a certain extent the decline of the pinnacle representative of Japanese manufacturing, and will also become an important watershed event in Toshiba's 148-year development history. However, delisting does not mean that it has failed to recover. Toshiba still has strong competitiveness in the fields of infrastructure, electronic equipment and semiconductors. The future direction is still determined by the decision-makers, but it will inevitably need to be cautious in its layout.
"An important step towards a new future"
Undoubtedly, the formation of JIP by more than 20 Japanese companies to achieve control has cleared the way for Toshiba's privatization and delisting.
According to foreign media reports, the acquisition initiated by JIP was implemented from August 8 to September 20. The purchase price per share was 4,620 yen, a total of 2 trillion yen (approximately RMB 97.4 billion). It currently holds 78.65% of the shares, exceeding the minimum threshold of 66.7% of the shares. In terms of independence, the JIP plan still retains Toshiba's CEO and its management team to achieve independent management of the business.
It is worth mentioning that although it is not well-known overseas, the JIP consortium has been involved in the spin-off and cutting of Japanese enterprise groups, including Olympus camera business and Sony's notebook computer business.
The person in charge of Toshiba's public relations department said, "We expect to hold an extraordinary shareholders' meeting in late November to go through relevant procedures. After that, the stock will be designated as a "consolidation stock" by the stock exchange. After about a month, the delisting will be completed."
By then, Toshiba will end its 74-year listing history since 1949 and will put an end to its years of troubles.
Since Toshiba fell into financial crisis after being exposed in an accounting fraud scandal in 2015, it has been in a state of chaotic management and operational difficulties for a long time. Since then, Toshiba has repeatedly announced mergers and acquisitions and restructuring plans, but all of them failed. Some analysts say that the delay in finalizing Toshiba's restructuring plan is related to the fact that Toshiba holds sensitive technologies and the Japanese authorities are particularly cautious in selecting investors.
In 2017, Toshiba introduced external funds to resolve its insolvency crisis and was able to avoid delisting by increasing its capital by 600 billion yen. However, some analysts believe that the exercise of voice by overseas shareholders participating in the capital increase will affect Toshiba's operations.
In order to get rid of the burden and travel light, at the end of 2021, news broke that Toshiba decided to split into three companies, focusing on new energy and infrastructure, hard disk and semiconductor business, and the production of flash memory chips. However, after the split plan was rejected by shareholders, Toshiba began to look for an acquirer in March 2022 in order to cut off from overseas investors. It was not until March this year that it accepted the acquisition invitation from the JIP consortium.
After passing JIP's acquisition invitation, Toshiba CEO Taro Shimada said in a statement, "We are very grateful to many shareholders for their understanding of the company's position. Toshiba will now take an important step towards a new future with the new shareholders." After the privatization is completed, Toshiba will still "do the right thing" to enhance corporate value.
In fact, Toshiba has been unable to support itself in the capital market. According to the regulations of the Tokyo Stock Exchange, Toshiba must end its years of insolvency, otherwise it will be forced to delist. In this regard, Toshiba barely managed to maintain its operations after selling assets one after another, but it was also difficult to regain the confidence of most investors, and conflicts with overseas capital parties occurred frequently.
"Active shareholders and Toshiba have been entangled with each other for years, and this acquisition frees both parties from mutual constraints." Quiddity Advisors analyst Travis Lundy said, "I expect management and the prospect of new ownership changes will boost morale. But in order to succeed, management needs to be able to tell a better story to investors."
The “Abandoned” Semiconductor Business
Judging from the current progress of the acquisition, the JIP consortium’s control of Toshiba is on the verge of completion. According to foreign media reports, JIP will officially become Toshiba's parent company and its largest shareholder on the 27th when settlement begins. Among the members of the consortium, in addition to financial institutions such as Sumitomo Mitsui and Mizuho, semiconductor manufacturers such as Rohm and Orix also participated in the acquisition.
Disclosed information shows that Rohm Semiconductor will invest up to 300 billion yen (approximately US$2.1 billion) in this proposal, making it the Japanese company with the highest investment amount involved in this merger and acquisition. Some analysts say that since Japan needs further integration to strengthen its semiconductor industry, Toshiba's privatization just provides Japan with an opportunity for industrial integration.
However, regarding whether Toshiba will strengthen cooperation with the above-mentioned semiconductor manufacturers, Major General Ding, an industry observer and home appliance and IT industry analyst, believes that this is not the case. He pointed out that "Rohm's investment may accelerate Toshiba's divestment of the entire semiconductor business. At present, Toshiba only participates in the semiconductor business (Kioxia), and may directly sell these shares to realize cash."
As Toshiba announced in June 2020, the company has no strategic intention to continue to stay in the storage market, so it will gradually liquidate its shares in Kioxia to ensure the company's income. However, it was later reported that Kioxia planned to conduct an IPO on the Tokyo Stock Exchange and conduct a merger transaction with Western Digital.
"Toshiba may hand over its semiconductor business to a more mature and competitive brand in the future, thereby focusing on major businesses such as infrastructure, while seeking new investors and re-listing. This will be its strategic direction for future revitalization." Major General Ding said.
It is understood that Toshiba was once an important chip manufacturer in Japan. In 2000, its semiconductor sales were second only to the American chip giant Intel, ranking second in the world. In 2008, Toshiba ranked third, second only to Intel and Samsung, and ahead of Texas Instruments and STMicroelectronics. However, competition in the global chip field has intensified in recent years. While companies such as TSMC and Samsung continue to improve their capabilities, Toshiba's chips have lagged far behind.
In 2018, Toshiba, which was in multiple difficulties, spun off its semiconductor business and sold it to a consortium of companies including Bain Capital of the United States for about 2 trillion yen, thus becoming an independent operating company, Kioxia. Among them, Bain Capital holds 49.9% of the shares of Kioxia, and Toshiba holds 40.2% of the shares.
However, due to the slump in the global semiconductor memory market, Kioxia has had a difficult time in recent years, with continuous large losses and fiscal deficits, and is therefore considering layoffs. Against this background, the cooperation between Kioxia and Western Digital has also made new progress. People familiar with the matter recently revealed that at least three banks plan to provide US$14 billion in loan refinancing for the merger of Kioxia and Western Digital, which may accelerate the merger process of both parties.
Some analysts believe that Toshiba still holds about 40% of Kioxia's shares. In the process of taking Toshiba private, buyers need to reassess the price of their shares. This will also have an impact on Western Digital’s acquisition plan.
Future development goals still face challenges
As one of the former representatives of Japan's manufacturing industry, Toshiba has a huge influence in the fields of home appliances, electrical, energy, infrastructure and semiconductors. It once created many "Japanese firsts", including Japan's first radar, the first transistor TV and microwave oven, the first color video phone, the first notebook computer, the first DVD, etc.
At its peak, Toshiba's home appliance business accounted for one-third of its total revenue, and together with Sharp and Panasonic, it became the "Big Three" of Japanese white goods. After becoming famous for its home appliances, Toshiba began to "run wildly" and quickly expanded its business into semiconductors, heavy motors, medical equipment, railway transportation, elevator manufacturing and other fields.
However, after running blindfolded, what was left was endless sadness.
In the past decade, after experiencing the collapse of the electronics industry and the failure of its nuclear energy business, Toshiba was unable to cope with thin profit margins and a sharp decline in performance. It was revealed that it had engaged in financial fraud for eight years. Subsequently, its stock price plummeted, its market value shrank by 40%, and it fell into bankruptcy. Under the crisis, Toshiba chose to survive by cutting off its arms. It sold its home appliances, laptops and other assets to Midea and Sharp respectively, sold some of its domestic licenses for white goods to Skyworth and others, and sold its equity in the memory chip company to focus on infrastructure, motors and semiconductor fields.
Now, after experiencing a series of rapid changes in the capital market and about to complete its privatization, Toshiba will implement the so-called "doing the right thing" in the future. Toshiba said that a stable shareholder base will help the company pursue its long-term strategy centered on high-profit digital services.
In addition, the management of the JIP consortium said in a statement released last month that "we aim to establish a stable management structure for Toshiba and quickly implement new growth strategies" once the transaction is completed.
"Specifically, we intend to further grow each business by better responding to the needs of Toshiba customers, implementing growth strategies through the development of new technologies, and providing a more valuable workplace for Toshiba executives and employees."
In terms of specific business paths, Major General Ding pointed out that Toshiba’s focus after privatization will definitely be to focus on infrastructure and other businesses, including power, urban transportation and water supply, and to re-establish credibility in the capital market and seek new investment and financing opportunities.
According to industry analysts, although Taro Shimada stated at the press conference at the beginning of this acquisition that Toshiba will be rebuilt into a company that contributes to the world, and the target sales in 2030 will reach 1.5 times that of 2022, or 5 trillion yen. However, since Toshiba has given up on businesses with higher sales such as medical equipment and semiconductor storage, this goal will be difficult to achieve.
Japanese media reports also pointed out that although JIP is intended to promote Toshiba's re-listing within 3 to 5 years, due to Toshiba's current weak financial foundation, the goal is also difficult to achieve.
However, there is another view that Toshiba has been in operational chaos for a long time due to disagreements with some shareholders on operations. This acquisition has changed the shareholder structure. In addition, the operators agree with a series of plans proposed by the JIP consortium. In the medium and long term, the company's development will show a positive trend.