Toshiba Opens Door to Activists -- WSJ

Share-sale plans are likely to bring pressure for cost cuts and governance changes

This article is being republished as part of our daily reproduction of articles that also appeared in the U.S. print edition of The Wall Street Journal (November 22, 2017).

TOKYO -- Toshiba Corp.'s plan to sell $5.3 billion of new shares to overseas funds secures its future but will likely lead to demands for further cost-cutting, unit sales and governance reforms from activist investors.

Toshiba said on Sunday it would sell 2.3 billion shares, equivalent to 35% of its total shares after the new issuance, to a few dozen foreign funds including activists such as Singapore-based Effissimo Capital Management Pte Ltd., New York funds Elliott Management Corp. and Greenlight Capital, Inc., and Hong Kong-based Oasis Management Co.

Japanese companies have traditionally preferred to sell stakes to local investors, who tend to make fewer demands on management than foreign investors, particularly activist funds.

Travis Lundy, an analyst at investment research website Smartkarma, said Toshiba's share-sale plan will likely help it make necessary aggressive restructuring. He said Toshiba probably had no choice but to bring in foreign capital because it faced a March 31 deadline to recover from over $5 billion of negative shareholder equity or be delisted from the Tokyo Stock Exchange.

Toshiba signed a deal in September to sell its flash-memory computer chip business to Bain Capital and other investors that would raise billions of dollars, but it may struggle to meet the March deadline to complete the sale.

Seth Fischer, Oasis's chief investment officer, said he wanted to see Toshiba trim costs and sell certain business units if the prices were right. He said the fund would be seeking more management transparency after Toshiba fell into crisis following a series of missteps.

Once Toshiba sells its memory business, Oasis would be looking for it to use some of the funds to buy back shares, Mr. Fischer said.

The share-sale deal hands the greatest voting power to Effissimo, which will become the largest shareholder with 11.34% ownership and has amassed a growing portfolio of Japanese companies. Effissimo, which declined to comment on its holdings in Asia, pushed for greater disclosure at Sharp Corp. during the sale of that company last year.

Ichiro Yamada, executive officer for equities at Fukoku Mutual Life Insurance, which has billions of dollars invested in Japanese stocks, said some foreign funds are likely anticipating restructuring and those who have taken greater stakes will add greater pressure on management accordingly.

Mitsushige Akino, chief fund manager at Ichiyoshi Asset Management said he expected more Toshiba staff cuts and a management shake-up if earnings don't improve.

Elliott and Greenlight declined to comment on their Toshiba investments. In a statement announcing the share sale plan, Toshiba said it would allow it to focus on becoming profitable.

Gregor Stuart Hunter in Hong Kong contributed to this article.

(END) Dow Jones Newswires

November 22, 2017 02:47 ET (07:47 GMT)