Toshiba’s demerger plan met with much opposition in Thursday’s shareholder vote

FILE PHOTO: Toshiba Corp's Annual General Meeting with its shareholders in Tokyo
FILE PHOTO: Toshiba logos are pictured at Toshiba Corp’s annual general meeting with its shareholders June 25, 2021 in Tokyo, Japan. REUTERS/Kim Kyung-Hoon/File Photo

March 24, 2022

By Makiko Yamazaki

TOKYO (Reuters) – Japan’s troubled Toshiba Corp goes into a crucial shareholder vote later on Thursday and faces a very good chance of winning support for its plan to spin off its appliances business.

The three largest shareholders – Effissimo Capital Management, 3D Investment Partners and Farallon Capital Management – all activist shareholders with whom Toshiba management 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 asking Toshiba to seek takeover bids from private equity – a proposal supported by Effissimo, Farallon and Glass Lewis but, perhaps significantly, not by ISS.

Each proposal needs 50% of the votes to be accepted.

Whatever the outcome, Thursday’s vote represents another major battle in a scandal-ridden four-year war between the 146-year-old conglomerate and activist shareholders over the running of the company.

Toshiba management argues that a spin-off is the best way to maximize shareholder value. Sources familiar with the matter have also said Toshiba hopes the plan would raise its share price to the point where activist shareholders would be enticed to leave the company.

Toshiba has rejected calls for a private equity buyout, arguing that the potential offers proposed so far are underpowered and raise concerns about the impact on business and employee retention.

But opposition to Toshiba’s plans was widespread and vocal. Together, Effissimo, 3D and Farallon own around a quarter of Toshiba. It is estimated that all foreign activist funds together own about 30%, while more broadly foreign investors own 50% of the industrial conglomerate.

Prominent institutional investors who have disclosed that they voted against the spin-off include Norway’s sovereign wealth fund with 1.22%, California’s public employee pension system with 0.43%, and the State Board of Administration of Florida with 0. 22%

Big investors yet to disclose their votes include BlackRock, which owns more than 5%, Elliott Management, which sources say owns nearly 5%, and Vanguard, which owns 2.6%, according to Refinitiv data.

None of Japan’s major domestic wealth managers have disclosed their voting plans.


If the spinoff 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 still plan to fight on, sources familiar with the matter have told Reuters on condition of anonymity.

Toshiba said it will continue to make every effort to gain shareholder support for the wind-up plan.

“Large shareholders will stay if stock prices don’t go up,” said Fumio Matsumoto, chief strategist at Okasan Securities.

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

However, support for 3D’s proposal is a little less clear-cut than opposition to Toshiba’s spin-off plan.

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

But Norway’s sovereign wealth fund and Hong Kong-based activist fund Oasis Management voted in favor, as did Toshiba’s outside director Raymond Zage, a Farallon adviser who says he is one of the top 100 shareholders and has sympathy with the public stance of the board of directors.

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

Bitterness between the two sides has reached multiple boiling points over the past two years. Last June, an investigation commissioned by shareholders revealed that Toshiba worked with the Japanese Ministry of Commerce – which considers the conglomerate a strategic asset because of its nuclear reactor and defense technology – to block foreign investors from gaining influence at its 2020 shareholder meeting.

($1 = 120.4 yen)

(Reporting by Makiko Yamazaki; Editing by David Dolan and Edwina Gibbs) Toshiba’s demerger plan met with much opposition in Thursday’s shareholder vote


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