Toshiba: memory lapse leaves investors eager to forget

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Toshiba is turning the page on a painful chapter. A group led by local buyout company Japan Industrial Partners plans to take the 147-year-old conglomerate private. The consortium will launch a $14bn tender offer on Tuesday.

The offer, which values the electronics-to-power stations maker at ¥2tn ($14bn), would be slightly higher than its ¥1.99tn market value on Monday. That indicates the deal will go through.

When Toshiba first received a buyout proposal from the consortium in February, the price was at a discount to Toshiba’s market value. The ¥4,620-per-share offer price would normally have been too low for shareholders to take seriously. They have struggled through an eight-year succession of activist battles and accounting scandals, spurning previous buyout offers.

Toshiba has six main businesses. Three of these have together been notionally worth more than the group’s market value for years: infrastructure, energy systems and a 40 per cent stake in chipmaker Kioxia. 

Much has changed. The consortium’s once-risible offer now looks compelling. Shares have dropped a fifth from last year’s high. Buying interest is dwindling. There is little hope for a higher offer as earnings weaken. Toshiba cut its annual earnings estimate in February.

Moreover, the valuation of the Kioxia stake, is also in peril. Kioxia makes memory chips, including Nand flash chips. It has been hit hard by a persistent slump in demand for these products. Global Nand flash sales plunged 45 per cent in the last quarter of 2022. They have continued to fall.

A supply glut has intensified losses. Customers are using up inventory, triggering writedowns on unsold stockpiles for global makers. Further price declines are expected as the chips become increasingly commoditised.

Toshiba’s longtime shareholders, including foreign activists that took stakes in 2017, will have roughly doubled their investment. It is not the dramatic return hoped for given the large conglomerate discount. Toshiba, on an enterprise-value-to-sales basis, currently stands at just 0.6 times.

The buyout will, however, end the succession of turnaround plans with their empty promises to shift away from its legacy businesses. Japan hoped foreign activists would help revive its old corporate warhorses. The Toshiba saga has shown how difficult that can be.