Japan’s troubled Toshiba Corp will be voted on Thursday by its shareholders about its plan to spin off its devices business. The plan is opposed by the top three shareholders – Effissimo Capital Management and 3D Investment Partners – as well as proxy advisory firms Institutional Shareholder Services and Glass Lewis.
A proposal by Singapore-based 3D requesting management to seek buyout offers from Private Equity is also on the table. This motion has the support of Effissimo and Farallon, but not ISS.
To pass a proposal, it must receive 50% of the votes.
No matter what the outcome of Thursday’s vote, it is yet another battle in the scandal-laden four-year war between activist shareholders and the conglomerate over the direction of the company’s future.
According to Toshiba management, a spin-off would be the best way for shareholders to maximize their value. According to sources familiar with the matter, Toshiba also hopes that the plan will increase its share price enough to attract activist shareholders.
Toshiba rejected requests to buy out private equity investors. It claimed that the offers made so far we’re not sufficiently compelling and would cause concerns about its business and staff retention.
However, opposition to Toshiba’s plans was vocal and widespread. Activist shareholders seem to have a lot more momentum than they do.
Effissimo, 3D, and Farallon together own about 25% of Toshiba. The total amount of foreign activist funds holding 30% is estimated, while overseas investors hold 50%.
Notable institutional investors that have publicly voted against the spinoff include Norway’s sovereign wealth funds, the California Public Employees Retirement System, and the State Board of Administration of Florida, with a stake of 0.22%.
BlackRock which holds more than 5%, Elliott Management (which, according to sources, holds nearly 5%), and Vanguard (which has 2.6% according to Refinitiv data).
None of Japan’s top domestic asset managers has revealed their voting plans.
UNEVEN SUPPORT 3D PROPOSAL
Hedge fund investors will likely be encouraged to push for a buyout if the spin-off proposal is rejected. Sources familiar with the matter told Reuters that even if management wins some shareholders will fight on regardless.
Toshiba stated that it will continue to try to win shareholder support for the plan’s dissolution.
Fumio Matsumoto, Okasan Securities chief strategist, stated that large shareholders won’t stay if share prices rise.
He said that a private equity solution is best for shareholders looking for solid returns and a quick exit, but not necessarily for Toshiba.
However, support for 3D’s proposal may be less clear than opposition to Toshiba spin-off plans.
CalPERS voted against the proposal in addition to ISS’s warning.
However, Norway’s sovereign wealth funds voted in favor. Also, Toshiba external director Raymond Zage – Farallon adviser and who claims he is a top 100 shareholder – voted in favor.
Since Toshiba sold 600 billion yen ($5billion) of stock to dozens of foreign hedge funds in 2017, the management of Toshiba has come under increasing pressure from activist funds. This was following the crisis that arose from the 2017 bankruptcy of its U.S. nuclear energy unit.
In the last two years, there have been several high points of animosity between the sides. Last June a shareholder-commissioned probe found Toshiba colluded with Japan’s trade ministry – which sees the conglomerate as a strategic asset due to its nuclear reactor and defense technology – to block overseas investors from gaining influence at its 2020 shareholder meeting.