(Bloomberg Opinion) -- As a bastion of Japan Inc. tries to break itself up, hedge funds and private equity firms have their work cut out. That is, if they want the most out of this drama.
After Toshiba Corp. put out a plan to split into three parts, one of its largest shareholders — 3D Investment Partners Pte. — last week said in an open letter it didn’t believe the plan was “optimal or likely to create value.” It urged the board’s strategic review committee, or SRC, to undertake a more thorough analysis of alternatives. The strongly-worded missive was in response to Toshiba’s conclusion that the breakup was the best option. Alternatives included putting the sprawling company in the hands of private equity operators or a privatization and bringing in a minority investor.
The source of tension was that its separation plan didn’t really address corporate governance problems or management dysfunction, nor did it go the extra mile to provide enough disclosure to ease the concerns of shareholders who’ve lost faith in the company. In addition, it didn’t show stakeholders what they really wanted to see: Details around valuations, asset prices or bids. If the committee were willing to provide an extensive tick-tock of the process, why not lay out the valuations and hard numbers?
Still, the reality is Toshiba is an over-century-old giant with a wide net of subsidiaries and a deeply conservative structure. A real, objective process to assess all the options — ranging from combinations of subsidiaries and asset disposals to selling some units and privatizing others, or the preferred full privatization — was never going to be a simple one. Layer in the national security interests and political considerations and it gets particularly complicated. And if the long-term management and board members have biases around certain businesses, it’s hard to be completely transactional about the whole thing.
Ultimately, with so many different interest groups driven by varying incentives and motives, it’s hard for Toshiba to find a universal solution. The only option is to find the best one. Could the board’s special review committee have taken more time and done more? Potentially. But at this point, the mistrust is so deep-seated that anything the company does is hard to take at face value. To move on, shareholders and investors need to roll their sleeves up and get involved. Expecting an answer to land in their laps that allows them to vote in favor isn’t going to happen. The private equity firms that were circling the company earlier in the year when CVC Capital Partners put in a $20 billion bid need to create real options for themselves and shareholders.
That wouldn’t be an unprecedented step: Unsolicited takeover offers are rising in Japan, including by public domestic companies. In the first six months of the year, 11 going-private transactions were announced and some were backed by private equity funds, according to Baker Mackenzie. In addition, there’s plenty of dry powder piling up that needs to be put to work. Such a move could kickoff a legitimate and considered process of assessment for Toshiba, one that so desperately needs a solution — run by financial and strategic investors.
To deal with a giant of Toshiba’s size, consortiums will have to be formed. Sophisticated hedge funds and the likes of Elliott Investment Management LP need to show up — and maybe even band together with private equity funds to develop the most efficient structure or, at least, to take the most unemotional approach. After all, this is what they do — across the world and across jurisdictions. In September, billionaire Paul Singer’s activist fund said it had become a “significant investor” but has, so far, been publicly silent on the Japanese firm’s plans.
That Toshiba is willing to divide itself is quite something. But until there are serious offers on the table, it’ll be hard to go much further from here.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. She previously worked for the Wall Street Journal.
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