Elliott’s “Wolfpack” Plans To Divide Toshiba Into 3 Standalone Companies By 2023
Japan has been quietly receding as it accepts its place as the world’s third-largest economy roughly a decade after China finally threw off the chains of its “century of humiliation” to reclaim China’s place as Asia’s most powerful economic and military force. But despite two decades of tepid growth and inflation, something even “Abenomics” couldn’t fix, a handful of big-name American investors are buying up some of Japan’s most visible companies seeking “deep value” in the land of the rising sun.
In Aug. 2020, Warren Buffett and Berkshire announced that while Berkshire was quietly dumping its holdings in American banks, Buffett was raising stakes above the 5% reporting threshold in Itochu, Marubeni, Mitsubishi Corp., Mitsui and Sumitomo.
A little more than a month ago, Paul Singer’s Elliott Management joined a “wolfpack” of investors targeting Toshiba with some whispering about the Japanese tech giant being broken up by its new private equity overlords, Elliott and its fellow “wolfpack” members.
According to Nikkei, Toshiba is set to divide itself into three companies to focus on three primary areas: infrastructure, devices, and semiconductor memory, with the division expected to be completed by 2035.
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All three are expected to be listed at some point. The move is part of Toshiba’s strategy to strengthen shareholder value by creating independent companies that have different profit structures and growth strategies. Japanese electronics companies, with their wide range of businesses from power stations to home appliances, used to be a growth engine for the country. Toshiba had been a star among those companies and a move like this by such a prominent entity is unprecedented. However, Toshiba has been disadvantaged by a so-called conglomerate discount, as investors tend to value a diversified group of businesses and assets at less than the sum of its parts because of a wider range of risks and a perceived reduction in capital efficiency.
Toshiba says it hopes to unveil it plan during its upcoming shareholder meeting.
Toshiba wants to incorporate the new plan into its mid-term management strategy to be unveiled on Friday.
Toshiba has its fingers in many pies – from the operation of nuclear and thermal power plants to transportation systems, from the manufacture of elevators to the production of air conditioners, hard disc drives and semiconductors.
These businesses earned 200 billion to 800 billion yen annually and brought in total revenue of 3.5 trillion yen ($30.8 billion) in the fiscal year that ended in March.
Under the new plan, Toshiba’s power stations business will be operated by an infrastructure company while hard disc drive business will be run by a device company, for example.
A company owned by Kioxia Holdings, in which Toshiba has a 40% stake, is expected to operate its semiconductor memory business.
However, it is also possible that its semiconductor business could be integrated into the company that oversees devices.
Toshiba shareholders are expected to be allocated shares in the new separate entities.
The big question now: how many more major Japanese corporations will be gobbled up as American dealmakers look further abroad for deals. Buffett and Munger both claimed that there’s still plenty of value to be found. So, will Elliott Management lock in some kind of competition against Berkshire Hathaway to help drive up Japanese valuations?