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Toshiba approves $15bn buyout offer from Japanese private equity fund

Toshiba’s board has approved a $15bn offer from a consortium led by a Japanese buyout fund, paving the way for the country’s biggest ever take-private deal.

Toshiba said that Japan Industrial Partners has offered to buy the group for ¥4,620 ($35) per share. Shares in Toshiba, Japan’s best-known conglomerate, closed at ¥4,213 on Thursday.

The 147-year-old conglomerate will be taken private by a consortium backed by 17 domestic companies and six financial institutions. According to people familiar with the matter, the group includes financial services group Orix, Chubu Electric Power and chipmaker Rohm.

Toshiba’s board said it approved JIP’s ¥2tn bid but stopped short of recommending it to shareholders, saying a special committee would further review the deal before the tender offer is expected to be launched in July.

“We reached the conclusion that this transaction would reasonably contribute to enhancing our corporate value if it leads to creating a stable management structure and if it can win unified support from shareholders,” Toshiba said.

People close to several of Toshiba’s largest shareholders said that they were “comfortable” with the formula used to value the conglomerate. At its peak last year, when higher bids were expected from Bain Capital and other global private equity funds, Toshiba was valued at ¥2.5tn.

The board’s approval of JIP’s bid heralds the end of an eight-year saga featuring an accounting scandal, a brush with delisting and a fire-sale of the company’s most valuable asset, the flash memory business now known as Kioxia.

If it wins the backing of Toshiba’s shareholders, the deal will lead to the company’s delisting — a fate it narrowly avoided in 2017 when the failure of its US nuclear business took it to the edge of bankruptcy.

As a result of its financial troubles, Toshiba in 2017 opted for an emergency issuance of $5.4bn worth of new equity in a deal engineered by Goldman Sachs. The transaction radically altered Toshiba’s shareholder register, packing it with a number of aggressive foreign activist funds who have called on the company to find better ways to unlock value.

For the past six years, the company’s largest shareholder has been Effissimo Capital Management, a secretive, Singapore-based fund run by Japanese managers that has applied heavy pressure on Toshiba.

Shares in the Japanese group soared after it received a $20bn take-private offer from European private equity firm CVC in April 2021. JIP’s latest offer represents a 21 per cent premium to Toshiba’s share price before CVC’s offer came to light.

After CVC’s offer collapsed and Toshiba’s plan to split the company was also rejected by shareholders, the group began soliciting new bids last spring, initially attracting interest from the world’s largest buyout funds. But JIP was ultimately chosen as the preferred bidder in October and Toshiba said no other fund submitted a concrete proposal.

Some analysts had said a domestic consortium was more likely for Toshiba due to the strategic importance of its nuclear and other businesses. On Thursday, the company said JIP was unlikely to seek a major change in its business strategy and indicated that a buyout would not lead to the complete replacement of its management.

At the same time, M&A bankers and lawyers said they believed that, once privatised, Toshiba would undergo a significant and potentially rapid restructuring, and was likely to put a number of non-core units up for sale.

JIP has previously acquired assets from groups such as Sony and Olympus, but it has no record of buying an entire company of Toshiba’s size.

One investor said that the premium being offered by JIP appeared extremely low, but that there were probably investors on the register that would welcome the chance to exit. “If the shareholders go for it, it’s quite a low-key end to this story, after everything,” he said.

Another investor said that the current makeup of the Toshiba board, which includes outside directors drawn from the activist funds Elliott Management and Farallon Capital, meant that there was now “reasonable confidence” that the company had explored all options.

Toshiba reported worse than expected results in February, with quarterly operating profit falling almost 90 per cent. Chief operating officer Goro Yanase resigned after auditors found he had repeatedly submitted entertainment expenses without reporting the names of attendees, in violation of company rules.

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