The Toshiba Boss Battle Will Continue

Toshiba remains in limbo after the company’s management suffered another setback in its drawn-out battle with activist investors.

Acquiring the company’s own turnaround plan would likely have been a negative signal for equity and corporate governance reform in Japan as a whole. But there’s still no clear path to what activist investors really seem to want: a private equity sale.

Shareholders of the Japanese industrial icon on Thursday rejected the company’s proposal to split the business in two. Curiously, the proposed resolution by Singapore-based 3D Investment Partners asking the company to fully consider all alternatives, including privatization, was also voted down.

Activist investors including Effissimo Capital Management and Farallon Capital Management have spoken out publicly against the company’s proposal. Recommendations from proxy advisory firms to vote against the plan likely helped convince some undecided institutional investors. Proxy firms were split on 3D’s proposal: Glass Lewis suggested investors vote in favour, while Institutional Shareholder Services was against.

It means the years-long saga, which saw Toshiba’s chairman ousted at a shareholders’ meeting last year, will continue.

Voting against 3D’s proposal does not necessarily mean shareholders are against privatization. The language of the resolution is perhaps a little too strong, as it requires the company to report regularly and in detail to the shareholders on all the efforts and proposals received, which is not necessarily conducive to seeking the best offer.

Even if the vote is not binding, Toshiba will face immense pressure to appease its investors. Activists can try to put their own representatives on the board. Selling the company to private equity funds could take time and face opposition within the company and possibly the government. Toshiba’s nuclear power and defense businesses could raise national security concerns.

“So it’s worth trying to figure out what would constitute a win for activists so they can sell,” says Travis Lundy, an independent analyst who posts on the investment research platform Smartkarma. “That’s what Toshiba should be thinking about.” Mr. Lundy suggests repaying capital and going public with memory chip maker Kioxia, in which Toshiba has a 40% stake, as soon as possible.

The company said last month it would increase payouts to shareholders over the next two years to the equivalent of $2.5 billion and sell its non-core assets.

Toshiba’s corporate drama will continue. Although there is still no firm resolution, one thing is clear: the company can no longer avoid meeting the demands of its shareholders.

This story was published from a news agency feed with no text edits

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