CVC proposes acquisition of Japan's Toshiba

The Japanese conglomerate said in a filing that it had received an initial proposal, which would be given careful consideration. The $20 billion valuation was first reported by Nikkei. Toshiba’s stock spiked 14.25% in response to the announcement to close at JPY4,530 on April 7, a more than four-year high. This gave the company a market capitalization of JPY2.1 trillion ($19.1 billion).

Asia’s biggest-ever PE buyout was completed in 2018 and it also involved Toshiba. A Bain Capital-led consortium acquired Toshiba Memory Corporation (TMC), the company’s prized flash memory business, for an enterprise valuation of JPY2 trillion. Last year, TMC – now known as Kioxia Holdings – pulled the plug on what was expected to be a JPY334 billion IPO.

Bain brought Innovation Network Corporation of Japan (INCJ), Development Bank of Japan (DBJ), Apple, Dell Kingston, Seagate, and SK Hynix into its investor group, while other equity stakes were snapped up by Hoya Corporation and by Toshiba itself. CVC would likely have to assemble a similar mix of financial and strategic supporters.

Toshiba is currently led by Nobuaki Kurumatani, who joined the company in 2018 from CVC, where he had served as Japan president for less than a year.

The TMC deal was prompted by Toshiba’s deteriorating financial position after its Westinghouse nuclear power unit filed for bankruptcy in early 2017. The company also disposed of various non-core assets, subsidiaries, and real estate to strengthen its balance sheet. This was followed by a strategic repositioning – through a JPY1 trillion investment plan – as an energy, infrastructure, and data services provider. It also promised stronger governance and internal controls.

However, Toshiba remains in the crosshairs of activist investors. Last year, Farallon Capital Management and Effissimo, which together own about 15% of the company, made separate requests for an emergency general meeting (EGM), citing weak justification of the new investment strategy and alleged misbehavior at the 2020 annual general meeting (AGM).

Shareholders defied the board to pass an Effissimo proposal to launch an independent investigation into the AGM. The activist investor alleged that certain shareholders were pressured to abstain from voting while other votes were not counted. The Financial Times reported last September that Toshiba sought to influence investors and proxy advisors regarding a vote on Kurumatani’s reappointment as CEO. He received 58% approval.

Toshiba posted JPY3.39 trillion in sales for the 12 months ended March 2020, down from JPY3.69 trillion a year earlier. EBITDA increased from JPY113.9 billion to JPY210.1 billion, while the company swung from a net profit of JPY1 trillion to a net loss of JPY114.6 billion. For the nine months ended December 2020, revenue was down 15% year-on-year at JPY2.1 trillion, EBITDA fell from JPY123.9 billion to JPY87.6 billion, and a loss of JPY145.6 billion had become a profit of JPY43.6 billion.

Under its corporate transformation plan, Toshiba is targeting JPY4 trillion in revenue, JPY530 billion in EBITDA, and 15% return-on-equity (ROE) for 2025. ROE was negative in the year ended March 2020.

CVC is currently deploying its fifth pan-Asian fund, which closed at $4.5 billion in early 2020. In February, the firm agreed to buy a majority stake in Shiseido’s personal care business at a valuation of JPY160 billion. This is set to be its largest investment in Japan since before the global financial crisis.

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• Topics
• North Asia
• Buyouts
• Industrials
• Japan
• CVC Capital Partners