Another Short Stick For Toshiba Shareholders

The sale of Toshiba was intended to mark the conclusion of years of corporate governance changes in Japan.

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Finally, the protracted tale of Toshiba TOSYY -3.64%decrease; red down pointing triangle is over. Or perhaps not. The shareholders of the Japanese industrial icon might not be pleased with a lowball offer.

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While everything is going on, the corporation, which has been involved in crisis after scandal, is seeing declining profitability.

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Toshiba announced on Thursday that it has accepted a $15 billion takeover offer from Japan Industrial Partners, a private equity firm located in Tokyo. Despite suggesting a 10% premium to Thursday's closing price, the offer price is probably lower than what many activist investors who have been advocating for a sale were hoping for. For instance, it is 7% less expensive than the CVC offer Toshiba rejected two years ago. Even Toshiba admitted that the price of the purchase wasn't high enough for it to be recommended to shareholders to approve it right away. The business will create a special committee to decide whether to offer a suggestion.

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It is therefore questionable whether the two-thirds shareholder approval necessary for the offer to be accepted. Although the board, which includes two members from activist shareholders, passed unanimously the acquisition, the offer is still up for grabs because the board didn't formally suggest it to shareholders.

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It hasn't helped that the buyer search has taken so long—nearly a year, to be exact. The corporation claimed that the consortium has continued to reduce its price recently due to the collapse of the stock markets and Toshiba's own subpar performance. The company decreased its annual profit prediction last month and reported a fall in profit. As a result of the recent wild slide in memory chip prices, Toshiba's stake in memory chip manufacturer Kioxia is no longer as valuable as it once was. Since June of last year, Toshiba has lost about a fifth of its worth.

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It was presumably difficult to make a quick decision due to the high number of participants in the purchasers' consortium (17 Japanese corporations and 6 other financial institutions, excluding JIP). Given that Toshiba has nuclear energy and defense operations, national security concerns have probably deterred international customers.

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According toTrade Algo, the outcome of the deal may rely on whether activist investors have the stamina to continue fighting or will give up and move on due to "Toshiba weariness." When Toshiba raised $5.3 billion from numerous international investors in 2017 as a result of terrible losses in its nuclear industry, some of them made investments in the company as early as that year. Ever since, Toshiba has sold the majority of its ownership in Kioxia, formerly known as Toshiba Memory, its prized asset. It has conspired with government representatives to restrict the rights of international investors. The shareholders fired the chairman of the company. It made an effort to divide into three. It then attempted to divide into two. Yet eventually, shareholders decided to opt for an outright sale rather than a split.

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The offer may disappoint investors who were thrilled that Toshiba had finally agreed to sell itself. But some people might opt to take whatever they can get after making so many fruitless attempts. If that is the case, it will paint a fairly unfavorable picture of Japan's advancements in corporate governance.