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Do Not Break Up Toshiba, Says The Japanese Conglomerate’s Major Shareholder

Do Not Break Up Toshiba, Says The Japanese Conglomerate’s Major Shareholder
On Wednesday, Toshiba Corp's second-largest shareholder expressed opposition to the Japanese conglomerate's proposal to divide itself into three businesses, instead urging it to seek offers from possible purchasers, according to a report by the news agency Toshiba.
In a three-page letter to Toshiba's board, hedge fund 3D Investment Partners, which controls more than 7% of the business, set out its reservations, becoming the first large shareholder to openly reject the break-up plan announced earlier this month.
The letter, seen by Reuters, underscores shareholder dissatisfaction with Toshiba's proposal, which is reflected in the company's recent poor stock performance, and increases the potential that the break-up may face opposition at a shareholder meeting scheduled for early next year.
There were no comments from Toshiba and 3D.
Singapore-based 3D said in the letter that the planned break-up of the company is "extremely unlikely" to address any of the present issues of Toshiba and "is instead very likely to create three underperforming companies in the image of today's Toshiba."
The turning down by Toshiba of a proposal to take the company private has disappointed a number of other hedge fund shareholders, according to the Reuters report.
Toshiba should "open a formal process, develop a compelling plan for each of the businesses, provide detailed diligence materials and management meetings to interested financial and strategic parties, encourage and enable stretch proposals from those parties and evaluate the best path forward", 3D said in its letter.
Following a governance controversy involving management's suspected cooperation with Japan's trade ministry to push foreign shareholders, Toshiba started its strategic review in response to investor demand.
During the five-month examination, Toshiba's review committee met with six private equity companies, including KKR & Co and Brookfield, to discuss strategic options, including going private, according to sources.
Despite the fact that the review committee never conducted an auction including due diligence for a possible sale, it has stated that discussions with private equity companies revealed potential offers were "not attractive relative to market expectations."
The review group, which is made up of five external board directors, has said that no genuine bids to take the firm private have been received. It has been reported that the concept of going private has caused disquiet inside Toshiba.
However, 3D criticized the review committee in its letter, which was also sent to the committee, for failing to seek suggestions for the sale of Toshiba or the partial disposal of certain of its companies.
"Overly reliant upon an intransigent management team's uninspired projection model and dubious claims of regulatory, employee morale and customer concerns about a different ownership structure, the (committee) appears to have compromised its review and relented," the fund said.
3D, created in 2015 by former Goldman Sachs banker Kanya Hasegawa, was one of the hundreds of overseas hedge funds that contributed to Toshiba's $5.4 billion capital infusion following the bankruptcy of its U.S. nuclear power subsidiary in 2017.
According to Refinitiv data based on disclosures this year, 3D owns shares in a number of smaller Japanese companies, including IT business Fuji Soft Inc, textile and technology firm Daiwabo Holdings Co Ltd, and music publisher Avex Inc.
According to Refinitv, it also holds an interest in MediciNova Inc, a biotech company based in the United States.

Christopher J. Mitchell

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