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Toshiba’s Second-Largest Shareholder Calls For Early EGM To Vote On Break-Up Plan

Toshiba’s Second-Largest Shareholder Calls For Early EGM To Vote On Break-Up Plan
Toshiba Corp's second-largest shareholder gave a call for an emergency general meeting on Thursday, attempting to force the corporation to secure two-thirds backing for a three-way separation plan that has enraged several significant overseas owners.
The plan by 3D Investment Partners, a Singapore-based hedge fund, is the latest in a lengthy and contentious dispute between the once-mighty tech company and a number of foreign owners, many of whom are activist funds.
Foreign hedge funds currently own nearly 30% of Toshiba, and many of them are skeptical that management's proposal to break the company into three sectors - one for energy/infrastructure, one for electronic devices, and one for flash memory chips - will maximize shareholder value.
After suffering for years from accounting scandals and governance concerns that eroded investor trust and resulted in the company's market value getting reduced by more than half, to approximately $18 billion, from a peak in the early 2000s, the break-up proposal was unveiled in November after a five-month strategic assessment.
If 3D's motion for the meeting is approved, it will trigger a vote that might derail the breakup plan, a strategy that has echoes of a similar approach outlined by General Electric Co last year.
3D holds about 7 per cent of Toshiba, a stake worth more than a billion dollars. It expressed concerns about the cost of proceeding with the split without obtaining shareholder approval in a statement and urged Toshiba to begin its strategic study.
"There is no rationale for pursuing at great expense the separation plan without knowing whether a sufficient number of Toshiba shareholders will ultimately provide consent," the fund said. Toshiba has previously said the plan will cost 10 billion yen ($86 million) to implement.
Toshiba announced on Thursday that it had received 3D's proposition and was reviewing it. Toshiba's stock was practically unchanged on Thursday morning, despite a 2.1 per cent drop in the Tokyo market.
In an unexpected twist, 3D has stated that if an extraordinary general meeting is authorized, it will vote against its own request to modify Toshiba's articles of incorporation to require two-thirds voting support for the "strategic reorganisation plan."
Instead, 3D suggested that the corporation not accept any restructuring "without first properly investigating other alternatives."
With its recommendations, 3D is basically attempting to compel the company to push forward a vote needing the support of two-thirds of stockholders, as needed by Japanese law, by more than a year. Officially, the vote is not scheduled to take place until the 2023 annual general shareholder meeting.
Toshiba has suggested a break-up to strengthen its focus on individual companies, which has been undermined by a 2015 accounting scandal and the bankruptcy of its U.S. nuclear division.
3D and other shareholders, on the other hand, have pushed for a more complete investigation that would include prospective private-equity bids.
According to 3D, Toshiba's strategy study has "failed to evaluate a wide range of alternatives."
The firm has suggested holding an extraordinary shareholder meeting in the January-March quarter to assess acceptance for the break-up plan, which is expected to be finalized by March 2024.
However, the meeting's specifics, such as the level of shareholder approval required to proceed with the plan, are unknown.
According to reports quoting sources familiar with the situation, requesting its shareholders at the extraordinary meeting to cast their votes on the reappointment of Toshiba's board directors in place of a direct vote about supporting the breakup plan that has been drifted among Toshiba's board is an alternative for asking for a direct vote on support for the breakup plan. 

Christopher J. Mitchell

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