Toshiba shareholders reject plan to break in two

TOKYO – Toshiba Corp. shareholders rejected a management plan to split the company into two, amid strong opposition from foreign shareholders, including some who want the company to be auctioned off to the highest bidder.

Under the plan, Toshiba would have spun off its electronic equipment business and the remaining entity would have focused on energy and infrastructure businesses such as power plant turbines and water treatment systems.

The Japanese industrial conglomerate’s management and foreign shareholders, who own about half the company, have been at odds for years as shareholders push for higher returns and deeper restructuring.

Many foreign investors said before the vote that they didn’t think the company’s management and board were trying hard enough to solicit offers from private equity firms to buy Toshiba outright. Such a buyout, while uncommon in traditional Japanese corporate culture, could allow investors to exit their Toshiba investments at a profit relatively quickly.

“We believe this is the last chance to fix Toshiba,” said Farallon Capital Management LLC, one of Toshiba’s major shareholders, in a March 11 statement.

After five years of discord, “we believe the only viable option to end the spiral of distrust and reposition the company for the future is to seek privatization proposals,” Farallon said.

Toshiba shares, trading slightly higher ahead of the vote, fell on the news, shedding about 3% Thursday afternoon.

Toshiba’s management, which originally proposed last November to split the company into three before revising the plan, said the two-way split was the best way to maximize enterprise value. It called Thursday’s non-binding vote hoping to get shareholder approval for the plan and said it would respect the results.

Corporate titans General Electric and Johnson & Johnson both announced their splits, two of the latest in a long line of conglomerate mergers. Here’s why big companies are splitting and what it could mean for investors. Photo illustration: Tammy Lian/WSJ

Toshiba board members said they had been in touch with potential private equity investors but never received a concrete offer for the whole company. They said potential buyers probably wouldn’t offer a good price for the company in its current form due to the wide range of businesses it does, from nuclear power plants to elevators. Therefore, it is better to push rationalization first.

Thursday’s vote revealed a lack of trust between shareholders and the current management and board. Some investors expressed concern that Toshiba replaced its chief executive three weeks before the vote.

Proxy advisory firm Glass Lewis & Co. said ahead of the meeting that it did not believe the board’s strategic review committee had thoroughly considered the options and that its recommendation “lacked credibility, truthfulness and transparency.”

The relationship between Toshiba and overseas shareholders deteriorated after a report published in June 2021 found evidence of widespread cooperation between the Japanese government and the company to suppress the votes of overseas shareholders ahead of a July 2020 annual general meeting. After that, the shareholders voted to expel Toshiba’s chairman.

The company’s future path after Thursday’s vote is uncertain, but further management or board changes are possible, analysts say, as are new talks with private equity investors. In April 2021, Toshiba rejected a takeover proposal by private equity firm CVC Capital Partners on the grounds that it was not detailed enough. After the vote, the company said it would work to build shareholder confidence and consider all options to improve shareholder value.

Toshiba shareholders also rejected a proposal made by Singapore-based 3D Investment Partners Pte. ltd and asked the company’s strategic audit committee to consider alternatives, including selling the entire company to a private investor. Some shareholders said they did not want to provide such specific direction to the committee.

Hiroshi Sukegawa, a former Toshiba engineer, attended the shareholders’ meeting and said he voted against the company’s wind-up plan and in favor of 3D’s proposal.

“I don’t like privatization very much, but the review process must be transparent,” said Mr. Sukegawa. “It’s unclear how the split plan came about.”

write to Megumi Fujikawa at megumi.fujikawa@wsj.com

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