Toshiba says it plans to split into three firms, rejects calls to go

By Makiko Yamazaki

TOKYO (Reuters) – Japanese industrial conglomerate Toshiba (OTC:) Corp outlined plans on Friday to break up into three independent companies by spinning off two core businesses – its energy and infrastructure business as well as its device and storage business.

After spinning off the two companies, Toshiba will continue to own its 40.6% stake in memory chipmaker Kioxia as well as other assets.

The plan – borne of a five-month strategic review undertaken after a highly damaging corporate governance scandal – is partly aimed at encouraging activist shareholders to exit, sources with knowledge of the matter have said.

A break-up would run counter to calls by some shareholders for scandal-ridden Toshiba to be taken private but its strategic review committee said that option had raised concerns internally about its impact on business and the retention of staff.

Private equity firms had also conveyed concerns about completing a deal due to possible conflict with Japan’s national security law and potential opposition from anti-trust regulators, it added.

Chief Executive Satoshi Tsunakawa said Toshiba would have chosen the option to split regardless of the presence of activist shareholders and that Japan’s powerful trade ministry had not voiced any objections to the plan.

“The decision allows each business to significantly increase its focus and facilitate more agile decision-making and leaner cost structures,” the company said in a statement.

Toshiba’s announcement come just days after General Electric (NYSE:) Co unveiled plans to split three ways – also marking the end of another pioneering conglomerate with more than 100 years of history.

RETURNS FOR SHAREHOLDERS

Toshiba hopes to complete the reorganisation by the second half of the 2023 financial year and said it aimed to return around 100 billion yen ($875 million) to shareholders over the next two financial years.

It also said it intended to “monetize” its shares in Kioxia, returning the net proceeds in full to shareholders as soon as practicable. But it did not elaborate on whether that meant it was still keen on an IPO or would be considering other options.

Other assets that will be continued to be held by Toshiba include its stake in Toshiba Tec Corp, a maker of printing and retail information systems.

Some Toshiba investors are not convinced that a break-up would create value, shareholder sources said ahead of a formal announcement of the plan.

“It makes sense to split if the valuation of a highly competitive business is hindered by other businesses,” said Fumio Matsumoto, chief strategist at Okasan Securities.

“But if there isn’t such a business, the break-up just creates three lacklustre midsize companies.”

The once-storied 146-year old conglomerate has lurched from crisis to crisis since an accounting scandal in 2015. Two…