Activists are poised to win a company reboot at Toshiba/Elliott.
No funny business. That appeared to be the message as the fearsome Elliott Management arrived on the scene at Toshiba, the beleaguered Japanese conglomerate. The US hedge fund has taken an exposure approaching 5 per cent of the shares ahead of a strategic review due for completion in October.
Investor pressure may finally force Toshiba to sell itself in a private equity deal valued in the tens of billions of dollars.
The group has been embroiled in a string of accounting and corporate governance scandals. The most recent involved Japanese government efforts to shield Toshiba management from the Western-style activism it theoretically welcomes. Fittingly, the climax of the saga may now showcase American capitalism in its most aggressive form.
Toshiba will argue that its best option is to eschew a full sale and pursue its standalone business plan while trimming its portfolio, perhaps taking on a large minority investor.
Its sprawling empire ranges from semiconductors to elevators and computer printers. Its current market capitalisation is $18bn and private equity bids have been mooted at up to $30bn.
Toshiba’s management has been of lower quality than most of its businesses. An investigation whose results were published in June showed that the government intervened to protect the CEO in 2020 while he was facing a shareholder revolt. With the likes of Elliott hovering alongside cash-rich private equity firms, monetisation of assets will be difficult to avoid.
American business has long celebrated the so-called “market for corporate control”. Here, investment groups compete for the chance to manage corporate assets. The tussle ideally leads to shareholder value maximisation.
Critics of the model contend it leads to corporate raiders slashing and burning. That latter accusation has dogged activists such as Elliott as well as buyout firms. In contrast, Toshiba’s woes represent a massive failure of traditional Japanese corporate governance, which stresses consensus and deference.
The question now is not whether the wolf pack will prevail at Toshiba, but which of its members will emerge as the alpha animal.
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