Toshiba split edges it slowly down the right path

3 minute read

The Toshiba logo is seen in Tokyo, Japan, June 25, 2021. REUTERS/Kim Kyung-Hoon

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HONG KONG, Nov 12 (Reuters Breakingviews) - Anything General Electric (GE.N) can do, Toshiba (6502.T) can do too. The Japanese conglomerate has become the second industrial titan in a week to announce plans to split itself into three. For corporate Japan, the move is revolutionary. For Toshiba shareholders hoping for a speedy sale to a private equity buyer, a proposal that will take two years to come good seems designed to discourage them from hanging around.

Toshiba said on Friday that, after an in-depth study by the board, it would spin out its energy and infrastructure units as one business with its devices and storage operations in another. The remaining rump will house its 40% stake in chipmaker Kioxia and its controlling share of $2.3 billion printer maker Toshiba Tec (6588.T).

There is plenty of potential to erase a conglomerate discount. Value the new infrastructure unit’s EBITDA on a 12 times multiple – a blend of Hitachi (6501.T), Siemens (SIEGn.DE) and ABB (ABBN.S) – and it would be worth $18 billion. Use data storage provider Seagate Technology (STX.O) as a proxy for Toshiba’s devices unit, and that’s another $7 billion. The company’s stake in Kioxia is worth $8 billion, based on valuations mooted in media reports of a possible sale or public listing of the chipmaker. Add it all together, and the sum of Toshiba’s parts is approaching double its $18 billion enterprise value.

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Realising that value relies heavily on Toshiba’s expectation that freshly enthused divisional managers will quickly start to improve their more focused empires. Shareholders used to years of unfulfilled promises may not be so confident. The hordes of smaller, conglomerate-like companies that litter Japan’s corporate landscape also cast doubt on a radical transformation.

That 148-year-old Toshiba considers its plan bold highlights the gulf between Japan and investors elsewhere. It’s the first company of its size to use the country’s new tax-friendly spinoff regime. But Toshiba’s shares have risen 69% this year largely on hopes that shareholders could force it into doing something audacious.

Investors can now stick with Toshiba in the hope that its managers deliver, or that its planned spinoffs lure back the private equity buyers Toshiba’s board talked to while conducting its strategic review. After years of dashed hopes, however, shareholders could be forgiven for pocketing their gains and getting out.

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- Japanese conglomerate Toshiba said on Nov. 12 it will split itself into three units by spinning off its energy and infrastructure division as well as its device and storage business.

- The plan was the outcome of a strategic review overseen by the board following a tumultuous period that involved activist investors effectively forcing out the $19 billion group’s chief executive before voting out its chairman.

- After the breakup the remaining core of Toshiba would hold its 40.6% stake in memory chip maker Kioxia as well as its controlling stake in Toshiba Tec, a maker of retail devices such as printers.

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Editing by Peter Thal Larsen and Oliver Taslic

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