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Activists gain momentum in Japan with $ 21 billion offer from Toshiba

(Bloomberg) – The surprise offer by Toshiba Corp. it is a palpable demonstration of the growing influence of activist investors in corporate Japan, who have gone from powerless spectators to kingship makers in just a few years. CVC’s offer to Capital Partners, while still in its early stages, comes just weeks after Toshiba’s CEO Nobuaki Kurumatani lost an important shareholder vote, forcing an independent investigation into alleged voting problems at his annual general meeting. last year. That loss increased pressure on Kurumatani, who was barely re-elected at last year’s meeting and is seen as unlikely to survive another. The vote was triggered by Toshiba’s largest shareholder, the secret hedge fund Effissimo Capital Management, based in Singapore. Any business for Toshiba faces legal obstacles, and analysts say investors like Effissimo would likely insist on a substantial premium on Tuesday’s closing price. But the episode shows that the influence of activism in Japan is becoming difficult to deny. “There have been false dawns before,” said Justin Tang, head of Asian research at United First Partners in Singapore. “But activism is taking over now.” Flexing MusclesCVC offered about 5,000 yen per share in its proposed purchase, according to a Toshiba executive. A bid at this level would value Toshiba at around 2.28 trillion yen ($ 20.7 billion) and represent a 31% premium over its last close before news of the offer came, data compiled by Bloomberg. This would make it the largest private equity-led acquisition company since 2013, and the largest acquisition ever recorded by CVC. Toshiba’s board plans to form a special committee to consider the proposal, said the executive, who asked not to be identified discussing confidential information. While there are many obstacles to an ongoing deal, Toshiba’s shares have increased their daily limit from 18% to 4,530 yen per share at the close on Wednesday in Tokyo. The shares gained up 5.7% more on Thursday. “Considerable value would be created simply by simplifying ownership and clarifying governance, making the company private,” said Nicholas Benes, a Japanese corporate governance expert. “Precisely because of this, one would expect this to be a case in which Toshiba will be open to other tenders, both by other PE firms and by strategic buyers.” Activist investors have increasingly exercised their muscles in Japan in recent years, as corporate governance reforms that promote shareholder value mean that management can no longer dispense with such pressure. Tokyo Dome Corp. will be removed from the list this month after the acquisition by a white knight last year to avoid pressure from activist investor Oasis Management Co. Once a famous name in Japan, Toshiba has drastically disappeared from its glory days after years of mistakes management and scandals. The conglomerate invented flash memory three decades ago, but was forced to sell most of its valuable chip business in 2018 due to losses in its nuclear power operation. This deal led to a cash injection – but also to a large contingent of more expressive shareholders. Last week, the Singapore fund 3D Investment Partners became the latest investor to say it can make proposals to management, increasing its stake to more than 7%. “Any success of this nature is likely to be a snowball and will lead to more activity,” said Damian Thong, an analyst at Macquarie Group Ltd. “There is a feeling that a large part of Japan’s industrial base is being managed inefficiently, resulting in an apparent undervaluation of Japanese conglomerates. ” Kioxia OptionsAn open question for Toshiba is the future of Kioxia Holdings Corp., its former memory chip division, in which it still holds the largest stake. Kioxia is focused on going public this summer, in an IPO that could value the deal at more than $ 36 billion, Bloomberg News reported last week. Alternatively, Micron Technology Inc. and Western Digital Corp. are interested in acquiring the company, reported the Wall Street Journal. If Toshiba guarantees a reasonable market valuation for Kioxia and its core businesses to attract multiples similar to those of its peers in Japan, Thong said he sees room for more than 1 trillion yen of shareholder value. This would imply a Toshiba share price of more than 6,500 yen per share, compared to CVC’s offer of 5,000 yen each. Mio Kato, of LightStream Research, sees a low possibility that the deal will close on current terms and expects volatile trading for Toshiba’s shares in the short term, depending on how things develop. Toshiba shareholders, especially activists, will want a “high price”, he wrote in a note published on SmartKarma. Given the sensitivity around several of Toshiba’s details, including its deep involvement in the decommissioning of the destroyed Fukushima Dai-Ichi nuclear power plant, government approval would be required for the deal, Chief Cabinet Secretary Katsunobu Kato said on Wednesday. -market. It is not clear whether a foreign company like CVC would be allowed to take control of Toshiba. The relationship between CVC and Toshiba executives – with Kurumatani, a former president of Japan and external director Yoshiaki Fujimori still employed by the company – also raised eyebrows. “This could simply be an attempt to buy time for Kurumatani,” said Kato. (Updates with sharing movement in the eighth paragraph) For more articles like this, visit us at bloomberg.comSubscribe now to stay up to date with the most trusted business news source. © 2021 Bloomberg LP

Paula Fonseca