Its three main shareholders – Effissimo Capital Management, 3D Investment Partners and Farallon Capital Management – all activist shareholders with whom Toshiba’s management has had a conflicting history – oppose the plan, as do proxy advisory firms Institutional Shareholder Services (ISS) and Glass Lewis.
A proposal from Singapore-based 3D asking Toshiba to seek buyout offers from private equity funds is also on the table. This motion has the support of Effissimo, Farallon and Glass Lewis, but not ISS.
Each proposal must obtain 50% of the votes to be adopted.
Whatever the outcome, Thursday’s vote represents another major battle in a scandal-ridden four-year war between the 146-year-old conglomerate and activist shareholders over the company’s direction.
Toshiba management argues that a spin-off is the best way to maximize shareholder value. Sources familiar with the matter also said that Toshiba hopes the plan will raise its share price to the point of enticing activist shareholders to leave.
Toshiba has rejected calls to seek a private equity buyout, arguing that potential offers offered so far were not compelling enough and would raise concerns about the impact on its business and staff retention.
But opposition to Toshiba’s plans has been as broad as it is vocal. Together, Effissimo, 3D and Farallon own about a quarter of Toshiba. All foreign activist funds combined are estimated to own around 30%, while more broadly foreign investors own 50% of the industrial conglomerate.
Major institutional investors who revealed they voted against the split include Norway’s sovereign wealth fund, which holds 1.22%, the California Public Employees’ Retirement System with 0.43% and the State Board of Administration of Florida with a stake of 0.22%.
Large investors who have yet to reveal their votes include BlackRock which owns more than 5%, Elliott Management which sources say owns almost 5% and Vanguard which owns 2.6% according to Refinitiv data.
None of Japan’s major domestic asset managers have revealed their voting intentions.
UNEQUALED SUPPORT FOR THE 3D PROPOSAL
If the split proposal fails, hedge fund investors are likely to emerge emboldened, gaining ground in their efforts to secure a buyout. But even if management wins the case, some shareholders plan to fight on regardless, sources familiar with the matter told Reuters on condition of anonymity.
Toshiba said it would continue to do everything possible to gain shareholder support for the split plan.
“Big shareholders will stay unless the stock price rises,” said Fumio Matsumoto, chief strategist at Okasan Securities.
“A private equity solution would be best for shareholders hoping for a quick exit with strong returns, but wouldn’t necessarily be best for Toshiba,” he added.
Support for 3D’s proposal, however, is a little less clear than opposition to Toshiba’s split plan.
In addition to ISS advising against accepting the proposal, CalPERS voted against.
But Norway’s sovereign wealth fund and Hong Kong-based activist fund Oasis Management voted in favor of the proposal, as did Toshiba’s outside director Raymond Zage, an adviser to Farallon who says he is among the top 100 shareholders and broke ties. ranks with the public position of the board.
Toshiba’s management has come under pressure from activist funds since it sold 600 billion yen ($5 billion) of stock in dozens of foreign hedge funds during a crisis stemming from the bankruptcy of its nuclear power unit American in 2017.
The acrimony between the two sides has reached several boiling points over the past two years. Last June, a survey commissioned by shareholders revealed that Toshiba had agreed with the Japanese Ministry of Commerce – which considers the conglomerate a strategic asset because of its nuclear reactor and defense technology – to prevent foreign investors to gain influence at its 2020 general meeting.
($1 = 120.4 yen)