After
receiving a financial lifeline from JIP,
a Japanese private equity firm, it remains to be seen how Toshiba will
overcome its current challenges and adapt to changing market conditions in the
years ahead.
Toshiba
was once the symbol of Japan’s industrial might, making everything from memory
cards to nuclear reactors. Founded in 1875, the company grew to become a major
player in a number of industries, including consumer electronics, home
appliances, and power systems. At its peak, Toshiba was widely regarded as one
of the "Big Four" of Japan's electronics industry, along with Sony,
Panasonic, and Hitachi. The company's success was due in large part to its
innovative spirit and its commitment to research and development. It was
responsible for a number of groundbreaking products and technologies, including
Japan's first radar system and the world's first laptop computer. Its
reputation for quality and reliability also helped to cement its position as a
leading brand in Japan and around the world.
Today,
Toshiba is a complete shadow of itself. Though one of Japan's largest and most
prominent conglomerates, the company has been struggling in recent years with a
series of financial and governance issues. As a result, foreign private-equity
firms have reportedly been circling the company, seeing an opportunity to
acquire a stake in a once-great Japanese firm that has fallen on hard times.
The
opening act for Toshiba’s problems is clear: the company has been beset by a
number of problems, including a major accounting scandal in 2015 that forced
the resignation of its then CEO Hisao Tanaka and a significant restructuring
effort. According to published evidence, Toshiba cooked its book to inflate
profits by $1.2 billion between 2007 and 2014. The executives who were
implicated in the scandal bowed deeply in apology. A new crop of the company’s
leadership had to apologize again when its big bet on Westinghouse, an American
nuclear-power company, went sour, leading to a $12 billion loss. To remain
financially afloat, Toshiba sold its prized memory chip division to a
consortium led by Bain Capital, an American private-equity group. The company
also issued a block of new shares – a move that attracted foreign investors,
including Effissimo Capital Management (ECM), a Singaporean asset manager, which
amassed a stake of nearly 10%, making it the largest shareholder in the
company.
Good
for the Goose, Bad for the Gander
Toshiba's
troubles have been compounded by the ongoing shift away from traditional
consumer electronics products like TVs and laptops, which has hit Toshiba's
core business lines particularly hard. The truth is that Toshiba, like many
other traditional consumer electronics companies, has been facing significant
challenges in recent years due to the shift in consumer preferences away from
products like TVs and laptops. This shift has been driven in large part by the
rise of mobile devices and the increasing popularity of streaming services,
which has resulted in declining demand for traditional electronics products.
Toshiba's
core business lines, including its consumer electronics division, have been
particularly hard hit by this trend. The company has struggled to compete with
newer players in the market, and has also faced intense price pressure as a
result of the increasingly competitive landscape.
In
addition to these challenges, Toshiba has also been dealing with a number of
other issues in recent years, including a major accounting scandal that
resulted in significant financial losses and a loss of trust among investors.
As a result of these challenges, Toshiba has been forced to undertake a major
restructuring effort in an attempt to turn the company around and focus on more
profitable business lines.
Despite
these challenges, Toshiba remains a major player in a number of key industries,
including nuclear power, semiconductors, and storage solutions. The company's
expertise and assets could make it an attractive target for private-equity
firms looking to gain a foothold in these areas. Reports suggest that several
foreign private-equity firms are considering bids for Toshiba, with potential
suitors including U.S.-based KKR & Co., Bain Capital, and Brookfield Asset Management, as well as
Canada's Brookfield Infrastructure Partners. Any acquisition would likely face
significant scrutiny from Japanese regulators and Toshiba's management, but the
interest from these firms suggests that there is significant potential value to
be unlocked in Toshiba's business.
Whisky
for My Men, Beer for My Horses
The
collapse of the surprise bid to take Toshiba private and the subsequent ousting
of CEO Kurumatani Nobuaki was a significant development for the Japanese
conglomerate. Tsunakawa Sastoshi, a former boss who returned to the job after
Kurumatani's departure, has put forth a different strategy for the group,
proposing that it be split up instead.
The proposal to split up Toshiba comes amid mounting pressure from shareholders, including activist investors, who have been calling for changes at the company. The split would involve separating Toshiba's various businesses into different units, each with its own management team and reporting structure. This would allow each unit to focus on its core competencies and improve its competitiveness in the market. In March 2022, Mr. Tsunakawa basically fell on his own sword as the plan faltered, after Toshiba’s shareholders killed the proposal for a split into two businesses, one focused on electronics and the other on infrastructure. Mr. Tsunakawa soon resigned from his position amidst opposition to the company's restructuring plan. The new interim CEO, Taro Shimada, reportedly intends to continue with the current break-up plan that has been approved by the board of directors.
Toshiba’s
problems remain. In 2020, the Japanese government has tightened regulations on
foreign investment in industries deemed important to national security, and
this has made it more difficult for foreign companies to acquire or invest in
Japanese companies. Toshiba has interest in many sectors that are important to
Japan’s national security, including nuclear power, chips, and quantum
computing. Regulators actually helped scuttle earlier buy-out bids for Japanese
companies. Bain Capital, which ultimately acquired Toshiba's memory chip unit
in 2018, appears to have navigated these challenges successfully. The firm
worked closely with Japanese regulators to ensure that its bid complied with
local laws and regulations, and had also secured the support of key Toshiba
shareholders. As a result, the Bain-led consortium was able to complete the
acquisition, which was seen at the time as a major victory for the firm and a
sign of its ability to operate successfully in Japan.
The
good news is that Toshiba appears to have finally found a softer landing: in
March 23, 2023, the company’s board accepted a $15.2 billion buyout offer from
a group led by the private equity firm Japan Industrial Partners (JIP) – a development
that can potentially draw a line under years of upheaval at the conglomerate. It
remains to be seen whether this offer will be accepted by Toshiba’s shareholders,
and if they do, what the implications will be for the company's future.
However, it is clear that Toshiba is facing significant challenges and will
need to make significant changes to remain competitive in the global
marketplace.
References
Mundy, J. (2014, September 19). Toshiba Shifting Away From
Consumer PCs. Retrieved from Trusted Reviews:
https://www.trustedreviews.com/news/toshiba-shifting-away-from-consumer-pcs-2922272
NBC News. (2015, July 21). Toshiba CEO Hisao Tanaka Resigns
Over Accounting Scandal. The Associated Press. Retrieved from
https://www.nbcnews.com/business/business-news/toshiba-ceo-hisao-tanaka-resigns-after-1-2bn-cooked-books-n395626
Reuters. (2017, March 29). After Crippling $12B Loss,
Toshiba's Westinghouse Nuclear Division Files for Bankruptcy. Retrieved
from https://financialpost.com/commodities/energy/after-crippling-12b-loss-toshibas-westinghouse-nuclear-division-files-for-bankruptcy
The Economist. (2022, April 9). Toshiba: In Search of an
Ending. p. 52.
Yamazaki, M. (2023, March 23). Toshiba Board Accepts Japan
Industrial Partners' $15.2 Billion Buyout Proposal. Retrieved from Reuters:
https://www.reuters.com/markets/deals/toshiba-board-agrees-accept-jips-153-bln-buyout-proposal-nikkei-2023-03-23/#:~:text=TOKYO%2C%20March%2023%20(Reuters),of%20upheaval%20at%20the%20conglomerate.
Yamazaki, M., & Murdoch, S. (2021, November 12). Toshiba
Plans to Split Into Three After Wave of Scandals. Retrieved from Reuters:
https://www.reuters.com/technology/toshiba-set-announce-split-into-three-firms-shareholder-reaction-focus-2021-11-12/
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