Toshiba accepts $15bn tender offer

June 2023 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

June 2023 Issue

Japanese electronics and technology manufacturer Toshiba has accepted a $15.3bn tender off from Japan Industrial Partners Inc (JIP), a major Japanese private equity investment firm which specialises in turnaround, buyout and carve-out investments, primarily in Japanese companies.

Should the sale go through it would become one of the biggest private equity-led takeovers in Japan’s history. JIP is leading a consortium of 20 companies including 17 Japanese businesses, as well six Japanese financial institutions, financial services group Orix, Chubu Electric Power and chipmaker Rohm, as well as megabanks such as Sumitomo Mitsui Banking Corp.

The group will pay $36 per share to acquire Toshiba, a premium of around 10 percent from the company’s closing price the day before the deal was announced, but slightly below the company’s six-month average.

The terms of the deal require investors to acquire at least two-thirds of outstanding shares to succeed. Upon completion of the deal, Toshiba would be taken private and would delist from the Tokyo Stock Exchange.

While Toshiba has not yet recommended the deal to its shareholders, the company noted that it will “support” the takeover offer. In a statement issued after a board meeting, Toshiba said it would ask a special committee to review the deal, before recommending how its shareholders proceed. “At this point, the board... expresses our support for the tender offer if it is commenced. However, the board has also passed a resolution to not go as far as to recommend it at this point.”

The potential sale comes on the back of years of turmoil for Toshiba. Recently, the company has faced scandals, financial troubles and high-level resignations. In February, Toshiba announced an 87.5 percent drop in third-quarter operating profit and cut its full-year earnings estimate for a second time.

The company’s financial difficulties began in 2015 when a profit-padding scandal erupted. Significant losses followed and Toshiba entered a wider financial crisis that was triggered by massive writedowns on its US nuclear business.

In recent years, the company has been propped up by foreign investors who have begun to push for faster growth and a clearer long-term strategy. In 2017, Toshiba opted for emergency insurance of $5.4bn worth of new equity in a deal curated by Goldman Sachs.

Goro Yanase, Toshiba’s chief operating officer, resigned over the inappropriate use of entertainment expenses in 2019 when he was an executive at Toshiba Energy Systems and Solutions Corp. Toshiba posted an operating profit of ¥5.3m for the October-December quarter, far less than a consensus estimate of ¥36.95bn from four analysts polled by Refinitiv. Toshiba lowered its operating profit forecast for the year ending in March to ¥95bn. Since 2015, the company has sold multiple divisions and cut around 8000 jobs.

Toshiba has been trying to go private in recent years. Proposals to split the company into three and then two companies were rejected by shareholders. Several shareholders argued that a spin-off would only add to Toshiba’s woes by creating more managerial posts at smaller units, rather than improving the firm’s governance. Ultimately, the spin off plan was rejected last year at an extraordinary shareholder meeting, dealing a blow to management as deadlock reigned over the next steps for the company.

The company first received a buyout offer from private equity firm CVC Capital Partners in April 2021, which was subsequently dismissed for lacking detail. JIP’s interest in Toshiba was first reported in October 2022, with the first bid being made for the company in early February. The JIP consortium submitted its formal bid after securing ¥1.4 trillion yen ($10.6bn) in loan commitments for its buyout, including a commitment line of ¥200bn for working capital.

JIP has previously acquired assets from groups, such as the Sony Vaio PC business and Olympus.

Richard Summerfield