Activist shareholders battle Toshiba in critical vote on company’s future

Toshiba risks a historic defeat at the hands of its shareholders who believe they have the backing to force the industrial conglomerate to reopen buyout talks with private equity.

The voting calculations by investors were shared with the FT ahead of a pivotal meeting of shareholders on Thursday. The meeting is set to be a showdown marking the climax of a four-year battle between Toshiba and shareholders on the direction of the company.

Representatives of several big funds said that, according to their calculations, at least 37 per cent of shareholders would vote against Toshiba’s plan to split the conglomerate in two, while about 50 per cent would support a proposal by the company’s second-largest shareholder, Singapore-based fund 3D Investment Partners, asking to reopen talks with private equity buyers.

Even a vote slightly below 50 per cent could press Toshiba into resuming talks with private equity companies KKR, Bain and Blackstone, which had discussed the possibility of a take-private deal for the whole company last year, according to people close to the talks.

The move would be a setback for Toshiba’s new chief executive, Taro Shimada, who said he supported the two-way split at a press conference this month, although some shareholders believe he may personally support the idea of a take-private deal. His March 1 appointment came after the abrupt departure of the previous boss Satoshi Tsunakawa.

Toshiba has suffered from a series of scandals and management missteps beginning in 2015 with a probe into fraudulent accounting. The fight over the future of the 146-year-old conglomerate has pitted its traditional Japanese management against activist shareholders and is being closely watched as a test of the country’s corporate governance standards.

A strategic review committee set up to advise Toshiba’s board concluded last September that no viable deal proposal had been made by private equity buyers and recommended a three-way split of the company.

Shareholders rebelled, arguing that the review was flawed, prompting Toshiba to propose a two-way split instead. That plan also ran into opposition from activist shareholders who said they opposed any option that did not consider a buyout.

Over the past several days, proxy advisory firms Institutional Shareholder Services (ISS) and Glass Lewis have come out against the two-way split proposal, as have the top three hedge funds holding the stock: Effissimo, 3D Investment Partners and Farallon Capital.

Raymond Zage, an independent director on Toshiba’s board who used to work at Farallon, said he supported the reopening of the talks with PE funds.

“It should not be difficult, nor time-consuming, to obtain preliminary bid indications,” said Zage, adding that shareholders could be provided with information to compare “a potential privatisation with the potential value of the proposed spin off plan”.

Norway’s sovereign wealth fund, which holds 1.22 per cent of Toshiba, said it too would vote against the two-way split proposal.

Toshiba has opposed the buyout option saying it could result in the company losing public orders. The conglomerate has also said it would be forced to sell sensitive segments in its defence and nuclear divisions.

But proxy advisory firm ISS said in a report to shareholders in early March that the two-way split was not the ideal alternative. “Years of corporate governance turmoil and attempted restructuring in the public eye, a split shareholder base, and an uninspiring management record raise significant scepticism as to whether the current plan is superior to a privatisation proposal.” 

Still it recommended voting against the two-way split and the take-private proposals, arguing that the latter was premature at this juncture.

The votes on Thursday are legally non-binding and will require only a simple majority to pass.