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Toshiba Corp is embarking on a new journey, leaving behind a challenging chapter. Supported by Japan Industrial Partners, a local buyout company, a consortium plans to privatize the 147-year-old conglomerate. On Tuesday, they will launch a tender offer worth $14 billion.
The offer values Toshiba Corp, a renowned manufacturer of electronics and power stations, at ¥2 trillion ($14 billion), slightly surpassing its market value of ¥1.99 trillion on Monday. This suggests that the deal is likely to be successful.
During the initial buyout proposal in February, the consortium offered a price lower than Toshiba’s market value. At ¥4,620 per share, this offer would typically be dismissed by shareholders. However, the situation has changed after years of struggles with activist battles and accounting scandals. Previous offers were rejected.
Toshiba Corp operates six main businesses, three of which have been valued higher than the conglomerate’s market value for some time: infrastructure, energy systems, and a 40% stake in chipmaker Kioxia.
Significant changes have occurred. The once-dismissed offer from the consortium now appears enticing as Toshiba Corp’s shares have dropped by 20% from their previous peak. Buyer interest is waning, and with weakened earnings, there is minimal hope for a better offer. In February, Toshiba Corp revised its annual earnings estimate downwards.
The valuation of Kioxia stake is also at risk. Kioxia specializes in memory chips, including Nand flash chips. The persistent decline in demand for these products has heavily impacted the company. Global Nand flash sales plummeted by 45% in Q4 of 2022, and the decline has persisted.
A supply glut has exacerbated losses, as customers deplete inventory, leading to write-offs for global manufacturers. These chips are expected to become increasingly commoditized, resulting in further price reductions.
Toshiba Corp’s longstanding shareholders, including foreign activists who invested in 2017, will likely see their investments double. However, this falls short of the anticipated returns considering the significant discount of the conglomerate. Currently, Toshiba Corp has an enterprise-value-to-sales ratio of just 0.6 times.
The buyout will finally put an end to the series of turnaround plans that failed to deliver on promises to shift away from legacy businesses. Japan had hoped foreign activists would revive its aging corporate giants, but the Toshiba saga demonstrates the challenges involved in achieving this.
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