Toshiba board gains two directors from activist funds in historic shift

TOKYO :Toshiba Corp shareholders voted in two board directors from activist hedge fund investors at its annual general meeting on Tuesday – an inclusion expected to add momentum to its exploration of potential buyout deals.

Nabeel Bhanji, a senior portfolio manager at Elliott Management, and Eijiro Imai, managing director at Farallon Capital Management were elected, as was Akihiro Watanabe, an executive from boutique U.S. investment bank Houlihan Lokey, who becomes board chairman.

The appointment of Bhanji and Imai was not without controversy and external director Mariko Watahiki tendered her resignation right after the vote, TV Tokyo reported. Toshiba declined comment.

Watahiki, a former high court judge, had argued their appointments could make the board too skewed towards the input of activist investors.

To date only a few large Japanese companies have brought activist shareholders onto their boards. The inclusion by Toshiba is particularly significant given its history of accounting and governance crises since 2015 and tensions with its large activist investor base.

“One of the major issues that we’ve had as a company is a lack of trust between our large shareholders and management, and this was an attempt to address that,” Raymond Zage, who chairs Toshiba’s nomination committee, told the meeting before the vote.

Farallon and Elliott together hold about 10 per cent of Toshiba and activist shareholders are estimated to own roughly a quarter of the company.

BUYOUT TALKS IN FOCUS

Tensions with activist investors were especially fraught last year when a shareholder-commissioned investigation concluded Toshiba had colluded with Japan’s trade ministry – which sees the company’s nuclear and defence technology as a strategic asset – to block overseas investors from gaining influence at its 2020 shareholder meeting.

This year, shareholders rejected management-backed plans to split the company in half, prompting Toshiba to restart a strategic review.

“Since the shareholders voted down the board’s strategy to split, the board has had no choice but to try to produce the outcome preferred by the large shareholders – privatisation,” said Travis Lundy, an analyst at Quiddity Advisors who publishes on the Smartkarma platform.

“It may not be successful but they don’t have the choice to do nothing.”

Seven new board directors were appointed and six including Watahiki were reappointed on Tuesday.

Toshiba said this month it had received eight initial buyout proposals to go private as well as two proposals for capital alliances that would see it remain listed.

It plans to shortlist bidders soon so selected suitors can start due diligence from July.

Jerry Black, who chairs the board’s committee in charge of the strategic review, told the AGM that going private “could possibly help” with a radical and speedy transformation of Toshiba, while stressing that the committee has no predetermined points of view.

Sources have told Reuters at least one bidder is considering offering up to 7,000 yen per share to take the company private, valuing a potential deal at up to $22 billion.

KKR & Co Inc, Baring Private Equity Asia, Blackstone Inc, Bain Capital, Brookfield Asset Management, MBK Partners, Apollo Global Management and CVC Capital Partners have submitted initial bids, according to sources with knowledge of the matter.

Some of them may form consortia for a bid, they added.

Japanese funds are also looking to see how they can participate in any deal. State-backed Japan Investment Corp has hired SMBC Nikko Securities as its financial adviser for a potential equity investment, two people familiar with the matter said.

Toshiba shares turned positive on the news of the board director appointments and finished 0.7 per cent higher at 5,745 yen. That’s up 21 per cent since the end of the year, giving it a market value of $18 billion.

 

Source: Reuters