Toshiba spin-off project faces stiff opposition in pivotal shareholder vote

The Toshiba Corp logo is seen at the company premises in Kawasaki, Japan June 10, 2021. REUTERS/Kim Kyung-Hoon

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TOKYO, March 22 (Reuters) – Struggling Japanese company Toshiba Corp (6502.T) is set to vote for shareholders on Thursday on its plan to spin off its devices business with very long odds.

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 controversial history – oppose the plan, as do proxy advisory firms Institutional Shareholder Services (ISS) and Glass Lewis.

Also on the table is a proposal from Singapore-based 3D calling on management to seek buyout offers from private equity – a motion that has the support of Effissimo, Farallon as well as Glass Lewis but, perhaps significantly, not ISS.

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Each proposal needs 50% of the vote to pass.

Whatever the outcome, Thursday’s vote represents another major battle in an outrageous four-year war waged 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 Toshiba hopes the plan will boost its share price to the point where activist shareholders will be incentivized to leave.

Toshiba has rejected calls to seek a private equity buyout, arguing that potential offers suggested 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 was as widespread as it was vocal, and by now activist shareholders seem to have plenty of momentum on their side.

Together, Effissimo, 3D and Farallon own about a quarter of Toshiba. It is estimated that all foreign activist funds together hold 30%, while more broadly foreign investors hold 50% of the industrial conglomerate.

Among the top institutional investors who have already revealed they voted against the spin-off are the Norwegian 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 0.22% stake. Read more

Large investors who have yet to reveal their votes include BlackRock (BLK.N) which owns more than 5%, Elliott Management which sources say owns nearly 5% and Vanguard which owns 2.6% according to the data. from Refinitiv.

None of Japan’s major domestic asset managers revealed their voting intentions.


If the spin-off proposal fails, hedge fund investors will likely emerge emboldened and gain momentum in their push for a takeover. But even if management wins, 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 breakup plan.

“Big shareholders will stay unless the stock price goes up,” said Fumio Matsumoto, chief strategist at Okada Securities.

“A private equity solution would be best for shareholders hoping for a quick exit with strong returns, but may not necessarily be best for Toshiba,” he added.

Support for 3D’s proposal, however, is a little less clear than opposition to Toshiba’s spin-off project.

In addition to the ISS advising against the proposal, CalPERS voted against it.

But Norway’s sovereign wealth fund voted in favor, as did Toshiba’s external director Raymond Zage, an adviser to Farallon who calls himself one of the top 100 shareholders and broke with the board’s public stance. Read more

Toshiba’s management has come under pressure from activist funds since it sold 600 billion yen ($5 billion) of shares to dozens of foreign hedge funds in a crisis stemming from the bankruptcy of its US nuclear plant in 2017.

The acrimony between the two sides has reached several boiling points over the past two years. Last June, a shareholder-commissioned investigation revealed that Toshiba colluded with Japan’s 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 shareholders’ meeting.

($1 = 120.4000 yen)

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Reporting by Makiko Yamazaki; Editing by David Dolan and Edwina Gibbs

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