Toshiba just wants to split into two companies

Tokyo The Japanese conglomerate Toshiba is responding to criticism from major shareholders with a second split plan. The management no longer wants to split the group into three, as originally planned, but only into two companies and sell many businesses such as elevators and air conditioning systems that are not part of the core business. The group management presented this proposal on Monday.

Toshiba will retain most of the power plant business, other “social infrastructure,” the battery division, and its 40 percent stake in memory chip maker Kioxia. The business with other semiconductor products and memory solutions is to be spun off and taken public.

To convince shareholders, Toshiba announced at the beginning of a two-day investor conference that it would triple its dividend to EUR 2.3 billion over the next two years. That was well received by investors: While the Nikkei 225 index fell by 0.7 percent, Toshiba’s share price rose by 1.6 percent to 4,800 yen (36.42 euros).

The stakes for Toshiba are high. With the first split of a technology giant in Japan, the group wanted to free itself from the crisis into which the bankruptcy of its nuclear power plant division and an accounting scandal had plunged it. But the November plan foundered due to broad opposition from foreign activist funds, which had bought into Toshiba’s $5.4 billion capital increase during Toshiba’s deep crisis.

The lack of discussions with investors in particular struck the contentious main shareholders such as Effissimo Capital Management and 3D Investment Partners from Singapore or Farallon Capital Management from the USA. You had previously overthrown a CEO. But now the management has listened according to its own statement.

“The refinement of the separation plan reflects the open and robust discussions we have had with shareholders and other relevant parties,” said independent director Paul J. Brough, who chairs Toshiba’s strategic realignment committee.

Toshiba management has already implemented the first points

With the new plan, the company aims to increase shareholder value, better allocate resources and make decisions faster to make each of the new companies more competitive. At the same time, Toshiba could offer “a clearer path” to the split, lower costs and retention of the tax-free status, said CEO Satoshi Tsunakawa.

Tsunakawa named the second half of the 2023 financial year as the target date. However, the group management has already implemented the first points of the new strategy. Toshiba recently announced it would sell its 60 percent stake in an air conditioning joint venture in the US to partner Carrier Global for $869 million.

In addition, the group wants to invest around one billion euros in an expansion of the production of wafers and chips, which will belong to the split-off company in the future. This is currently managed under the name “Device Co.”. Among other things, the division supplies semiconductors to the automotive industry, which is currently suffering from delivery bottlenecks.

Toshiba promises to lead both companies on a solid growth course. The group’s sales are expected to increase by 5.3 percent annually to 14 billion euros by 2025, and the profit margin from the current 3.6 percent to 6.4 percent. For Device Co., Toshiba calculates that sales will grow by 4.1 percent annually to 7.7 billion euros by 2025 and the profit margin from 6.4 to 7.9 percent.

More: Technology group Toshiba splits into three companies