Across its nearly seven-year telling, the Epic of Toshiba has been a gripping story of new peril and new precedent. None of that, plainly, was any fun for the flawed industrial hero at the heart of the tale. At no time did it appear in control of its destiny.
Then the board suddenly proposed last week to split the 140-year-old company in three. With at least one of the new companies clearly attractive to private equity, and with quick asset sales in greater prospect, we have arrived at a narrative fork. Some, especially merger and acquisition bankers, would love to see the plot take the direction of a split-up — not just for Toshiba, but for other Japanese companies looking at conglomerate disintegration as the new global theme and wondering when their own troubled dramas might begin.
It is important to recognise how much new ground Toshiba’s unhappy travails have broken, and how often it has put Japan on the spot. A dismal accounting fraud in 2015 was followed by the collapse of its US nuclear operations two years later. Then came demotion from the top flight of the Tokyo Stock Exchange, the sale of its prized memory chip making business, the foreign activist swarming of its shareholder register and the forced ousting of top management at an extraordinary general meeting earlier this year. In form and scale the torment has persistently dazzled.
The sub-stories, which include allegations of collusion between top Toshiba management and Japan’s trade ministry, have been no less trail blazing. On Friday, a panel of lawyers appointed by Toshiba to investigate governance failings reached the conclusion that the company “did not have enough self-awareness of the fact that their corporate activities should be conducted autonomously”. Astonishing stuff but again, as a symbol of corporate Japan, Toshiba’s behaviour has looked exceptional in its degree, not its nature.
This spectacular pile-up of woes required a big solution. The plan to break Toshiba into three parts, which was announced on Friday, followed more than four months of deliberations by a special committee whose existence was triggered by a historic (for Japan) defeat of management by shareholders over governance issues. The fact that the split would take high-profile advantage of a tax change introduced by the ministry of economy, trade and industry (Meti) to make such spin-offs more attractive suggests that this solution has government blessing.
Shareholders, many of them foreign activists, will vote early next year on whether to push ahead with the new plan. Overshadowing this process was an approach by the private equity group CVC, which suggested a $20bn take-private deal for the whole of Toshiba. Some of the shareholders decided long before Toshiba’s strategic review committee (SRC) reached its conclusion that they would accept nothing less than a full auction of the company.
Toshiba’s narrative fork depends on whether shareholders accept that the efforts of the SRC were as exhaustive and well-intentioned as claimed and, crucially, whether they have indeed landed on the best solution.
The job of convincing them belongs to Toshiba’s board and investor relations department. They will deploy two arguments, as is clear from conversations with shareholders and those close to Toshiba. The first, as Toshiba outlined in a 36-page presentation on Friday and badly needs to flesh out in coming weeks, demands a leap of faith (in fact, several leaps) that the three-way split delivers the most value. They may find that case becomes an easier sell if Toshiba’s shares rise in coming weeks.
The second strand is shaping up as more subtle. It centres on the implication that a vote in favour of this split might somehow be a vote for a more broadly value-focused, shareholder-friendly corporate Japan. The idea, perhaps, is to lean into Toshiba’s unfortunate run of negative precedent-setting with the suggestion that this eye-catching three-way split and its exploitation of Meti’s tax revision could emerge as the template for others to follow.
There are plenty of other Japanese conglomerates, from household names like Panasonic and Mitsubishi Heavy Industries to less well-known corporate sprawls, that already face calls for restructuring. These calls could now take a more specific form if Toshiba’s experience emerges as a success.
It may prove a long shot. Toshiba’s activist shareholders may have presented themselves over the past few years as doing battle with the big bad forces of old Japan. Toshiba, through clumsiness, history and slavery to its own instincts, has too often appeared emblematic of these forces. That does not mean, though, that historic change for Toshiba equates to something bigger. Shareholders cannot be expected to bet that it might be.
leo.lewis@ft.com