Toshiba is preparing to give up a huge stake in its business in order to avoid delisting. The embattled conglomerate is set to raise some $5.4 billion through a sale of new shares. The downside being that a group of more 30 overseas investors, including activist funds, will own a 35 per cent stake in Toshiba.
The value in Toshiba shares will also drop sharply following the release of new ones. By issuing 2.28 billion new shares at 262.8 yen per share, a 10 perc ent discount to Friday’s close, will result in a massive 54 percent dilution in earnings per share.
“Toshiba’s fund raising news eliminates the risk of Toshiba being delisted so that part is positive,” said Takatoshi Itoshima, chief portfolio manager at Commons Asset Management. “What’s also positive is that the fund raising will improve the company’s financial health. There is an argument that the company will be left with nothing (without the chip business), but it’s good that the company’s capital will recover.”
The move is the latest attempt by Toshiba to recoup funds lost in its disastrous nuclear arm Westinghouse. Last week it emerged that Toshiba was to sell its TV arm to Chinese firm Hisense in a deal reportedly worth $114 million. There have also been rumours that Toshiba is in talks with Asus and Lenovo over a sale of its PC unit, however the Japanese firm has moved to deny those rumours.
Toshiba bosses also finally penned an $18 billion deal for its chip unit in September, paving the way for a consortium led by Bain Capital and Apple to take over its memory unit. The deal looked like it was done some time before but Apple demanded new terms at the last minute sparking doubt that the deal would be complete. The consortium also includes SK Hynix, as well as Dell, Seagate Technology and Kingston Technology.
But bosses at Toshiba will now be scrambling to satisfy the March regulatory review, which usually takes six months to complete. Cutting it fine, if the deal does not close before then, Toshiba - hurt by liabilities at is now bankrupt nuclear unit Westinghouse - is likely to end a second consecutive year in negative net worth, putting pressure on the Tokyo Stock Exchange to strip it of its listing status.
The sale also faces legal challenges from Western Digital, Toshiba’s chip venture partner and rejected suitor, which is seeking an injunction to block any deal that does not have its consent. Western Digital's attempts to block the deal shouldn't come as a surprise though. Western Digital says that it has legal rights to block any deal made without its consent. An independent arbitration panel is set to be formed in the coming days, and an injunction could come later this year. A final ruling isn't expected until at least 2019.