Toshiba shareholders accuse conglomerate of overlooking privatisation bids

Several of Toshiba’s biggest shareholders are accusing the Japanese conglomerate of failing to fully pursue talks with private equity buyers, and say they will ratchet up pressure on the board to revive discussions on a full buyout of the company.

The investors said that despite Toshiba’s claim that it had not received convincing indications of a buyout, they believed that at least two private equity buyers had discussed valuations at least 25 per cent higher than the company’s current price of ¥4,743 ($42) per share.

As a measure of their concerns, shareholders who collectively hold more than 30 per cent of Toshiba’s stock, told the Financial Times, that as matters stood, they planned to vote against a proposal tabled in November that would break the 140-year-old industrial giant into three separately listed businesses rather than pursue a full privatisation.

Several managers said they suspected that holders of at least another 15 per cent of Toshiba’s shares would follow suit when a vote on the proposal is held early next year.

In addition to concerns that the three-way split denied investors the chance to consider a privatisation offer, one of the largest shareholders said that it was a poor alternative given the extent to which governance issues featured in Toshiba’s many problems in recent years.

“Conducting a three-way split without an appropriate governance structure in place will lead to a worsening of governance problems,” said a manager at one of the largest shareholders.

The division proposal emerged from a months-long strategic review which Toshiba’s second-biggest shareholder, 3D Investment Partners, said in a letter to the company had arrived at “a premature conclusion to an inadequate process”.

At least two funds among Toshiba’s 20 biggest holders told the Financial Times that they were also considering more immediate tactics, which could include calling an emergency meeting of shareholders to vote on a purge of the board.

“There are key disclosures we are still waiting for regarding the company’s attempt to solicit private equity buyers and get a realistic price on the table. If the company does not hear us asking for that, an EGM is certainly one option,” said a manager of one big shareholder.

The intensified agitation of shareholders follows the release last month of what several funds described to the FT as a “misleading” statement by a strategic review committee assembled to consider the company’s long-term future and recommend action to the board.

The committee said in November that although it had engaged with six private equity firms — understood to include KKR, Bain, CVC and Blackstone — to discuss a full privatisation, the price level envisioned by the buyout funds were “not compelling relative to market expectations”.

But several of Toshiba’s largest investors said that, after conducting their own research, they had strong reason to question the validity of both the SRC’s process, which did not represent a formal auction, as well as its outcome.

In particular, a significant group of investors believes that at least two PE firms had indicated to the SRC that a buyout could theoretically value Toshiba at more than ¥6,000 per share — a premium of roughly 20 per cent on the company’s share price during the discussions.

Toshiba could not immediately be reached for comment. On Friday, a Toshiba spokesperson said that the company would “continue to provide sincere explanations to our shareholders”. The company also referred to its earlier statement on the SRC, whose recommendations it noted the board had “unanimously” endorsed.

Within the past two weeks, investors have been contacted by Makinson Cowell, an outside adviser on investor relations that previously conducted a survey on Toshiba’s behalf in July. Investors said they had left the researchers in little doubt about their misgivings over the SRC’s process.

They added that, despite Toshiba’s claims of commitment to greater transparency, they cited as another cause for concern the fact that the results of Makinson Cowell’s latest survey would not be shared with investors, a policy confirmed by a Toshiba spokesperson.