Friday November 12th 2021
Separate semiconductor business
Toshiba breaks itself into three parts
Foreign shareholders are putting increasing pressure on Toshiba. Now the Japanese giant is reacting to the demand for more transparency and efficiency and is splitting into three parts. One of the newly created companies will focus primarily on semiconductor chips.
The Japanese technology giant Toshiba wants to split into three listed companies. The long-established company has now announced this. Under strong pressure from foreign shareholders, the group, which has been stumbling for a long time, hopes to use this step, unprecedented for Japan, to strengthen profitability in key areas in the future.
The corporate giant, founded in 1875, is one of the best-known names in the Japanese economy. However, the disastrous foray into the US nuclear power business and a balance sheet scandal brought Toshiba to the brink of the abyss in the middle of the last decade.
By 2023, the energy, infrastructure and digital business on the one hand and the semiconductor and hard drive division on the other are to be split off and listed on the stock exchange separately, as the group announced. That leaves the core business with the printer division (Toshiba Tec) and the 41 percent stake in the memory chip manufacturer Kioxia. Toshiba also wants to monetize the latter.
Just a few days ago, the US industrial group General Electric (GE) announced that it would also split into three companies. GE and Toshiba have long been partners and cooperate in areas such as offshore wind turbines. At General Electric, companies for aviation, medicine and another company are to be created in the future, which will cover the business of renewable energies, energy generation and digitization.
Links to the Ministry of Economic Affairs
With the split, which is now also planned at Toshiba, the Japanese corporate conglomerate is responding to growing demands from activist shareholders for transparency and efficiency. In June, an independent investigative body found that Toshiba managers were collaborating with the Department of Economy, Trade and Industry (METI) to prevent foreign shareholders from influencing the board of directors by sending directors. Two top managers then had to vacate their posts. CEO Satoshi Tsunakawa had justified the relationship with METI with the fact that Toshiba’s business is important for the national security of Japan. Toshiba went “too far”, however.
Foreign shareholders hold a large part of the shares in Toshiba. In the report that has now been submitted, the group admitted that top managers such as the former CEO Nobuaki Kurumatani have violated business ethics by kinking with the powerful industry ministry, but have not violated any laws. Toshiba has been accused of being overly dependent on the METI and having excessive reservations about overseas mutual funds. Kurumatani abruptly resigned in April in connection with internal disputes over a multi-billion dollar takeover bid by British financial investor CVC Capital Partners.
Unwelcome shareholders
The demerger plan is the result of a five-month strategy review following the reputational management scandal. According to insiders, Toshiba hopes to move activist shareholders such as Elliott, Third Point and Farallon to exit. The company said the split is about creating value for shareholders. But some Toshiba investors are not convinced of this, according to shareholder circles. “A split makes sense when the valuation of a highly competitive business is being overshadowed by other businesses,” said Okasan Securities’ chief strategist Fumio Matsumoto. “But if such a business doesn’t exist, you can only create three mediocre midsize companies with one split.”
Toshiba currently consists of seven corporate groups, including one for infrastructure such as public transportation systems, an energy division for the construction of heating and nuclear power plants and an electronics unit that produces hard drives and semiconductors. Toshiba plans to complete the listing of the two spin-off companies in the second half of fiscal year 2023 (by March 31). The remaining Toshiba group would then have a stake in the semiconductor company Kioxia Holdings of around 40 percent.