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Toshiba board to rule out deal to take whole group private

Toshiba’s board is poised to rule out pursuing a deal to take the whole company private and is preparing to reveal an alternative plan to split the business in three that some investors say they may reject, according to people familiar with the matter.

A $20bn offer for the conglomerate by UK private equity group CVC in April boosted the share price and it has stayed high since then on hopes Toshiba would go ahead with what would be Japan’s biggest-ever buyout.

But after a rare and successful revolt by shareholders demanding either a buyout deal or a radical restructuring, Toshiba was forced to assemble a special committee to examine options for reducing the company’s hefty “conglomerate discount”.

The committee’s plan, due to be put forward on Friday, would split Toshiba into three companies and leave open the possibility that at least one of the businesses — most probably a company specialising in smaller devices and semiconductors — could be sold to private equity.

One of the three companies, which will predominantly hold Toshiba’s infrastructure, nuclear and heavy engineering operations, along with sensitive technology in areas such as artificial intelligence and quantum computing, is likely to fall under the protection of Japan’s newly tightened Foreign Exchange and Foreign Trade Act.

Another company would operate as an asset management division and hold Toshiba’s 40 per cent stake in Kioxia, the memory business it part sold to private equity group Bain Capital in 2018. The company’s successful office and retail machinery manufacturer, Toshiba Tec, would also be part of this division.

The proposed restructuring of Toshiba, which must win the approval of shareholders at an extraordinary general meeting, is the result of four months of intensive deliberations over how to restore the fortunes of a company that came close to collapse in 2017.

As part of the financial engineering deployed to try and end that period of turmoil, Toshiba issued new shares. A large proportion of these ended up in the hands of activist investors who have proved capable of defeating management in shareholder votes.

Since the plan for the three-way split was leaked this week, nine investors representing about 30 per cent of Toshiba’s share register have told the Financial Times that they found the proposal disappointing and unrealistic.

“If the split is a fallback plan, then it is acceptable but only if it’s after the company starts a sales process [to private equity] and it fails,” said one shareholder.

Several shareholders said they were disappointed that a break-up plan had emerged as the favoured option over selling the entire company to private equity, which some believe would release more value.

“From the little information we have at this point, a three-way split does not sound like something we are going to support. I think there are still going to be investors that won’t believe there isn’t a PE deal out there for the whole company,” said one shareholder.

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