Toshiba Corp.’s shareholders rejected a management plan to split the company into two parts, reflecting strong opposition from foreign shareholders including some who want the company to be auctioned to the highest bidder.
Under the plan, Toshiba would have spun off its electronic-device business and the remaining unit would have focused on energy and infrastructure businesses such as power turbines and water-treatment systems.
The Japanese industrial conglomerate’s management and foreign shareholders, who hold roughly half the company, have been at odds for years as the shareholders push for higher returns and more extensive restructuring.
Many foreign investors said ahead of the vote that they didn’t believe the company’s management and board tried hard enough to solicit proposals from private-equity firms to buy all of Toshiba. Such a buyout, though unusual in Japan’s traditional corporate culture, could enable the investors to exit their Toshiba investments relatively quickly with a profit.
“We believe this is the last chance to fix Toshiba,” Farallon Capital Management LLC, one of Toshiba’s major shareholders, said in a statement March 11.
After five years of discord, “we believe that the only viable option to put an end to the spiral of mistrust and reposition the company for the future is to solicit privatization proposals,” Farallon said.
Toshiba shares, which were slightly higher before the vote, fell on the news and were down about 3% in afternoon trading Thursday.
Toshiba management, which originally proposed last November to split the company into three before revising the plan, said the two-way split was the best way to maximize corporate value. It called the nonbinding vote Thursday, hoping to get shareholder buy-in for the plan, and said it would respect the results.
Toshiba board members said they had contacts with potential private-equity investors, but never received a concrete offer for the whole company. They said potential buyers were unlikely to offer a good price for the company in its current form because of its diverse mix of businesses, from nuclear power plants to elevators, so it was better to pursue streamlining first.
Thursday’s vote exposed a lack of trust between shareholders and the current management and board. Some investors said they were disturbed that Toshiba replaced its chief executive three weeks before the vote.
Proxy advisory firm Glass Lewis & Co. said ahead of the meeting that it didn’t think the board’s strategic review committee did a thorough job reviewing options and its recommendation “lacks credibility, veracity and transparency.”
The relationship between Toshiba and foreign shareholders worsened after a report released in June 2021 found evidence of broad collaboration between the Japanese government and the company to stifle foreign shareholders’ voices ahead of an annual shareholder meeting in July 2020. After that, shareholders voted to oust Toshiba’s chairman.
The company’s path forward after Thursday’s vote is uncertain, but further changes in the management or board are possible, analysts say, as well as new talks with private-equity investors. In April 2021, Toshiba rebuffed a takeover proposal from private-equity firm CVC Capital Partners, saying it didn’t have enough detail. After the vote, the company said it would work to build shareholder trust and consider all options to improve corporate value.
Toshiba shareholders also rejected a proposal submitted by Singapore-based 3D Investment Partners Pte. Ltd., asking the company’s strategic review committee to consider alternatives, including selling the whole company to a private investor. Some shareholders said they didn’t want to give such specific directives to the committee.
Hiroshi Sukegawa, a former Toshiba engineer, attended the shareholder meeting and said he was voting against the company’s breakup plan and for 3D’s proposal.
“I don’t like privatization very much, but the process of consideration needs to be transparent,” said Mr. Sukegawa. “It’s unclear how the split plan came up.”