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Hong Kong fund leads fight against Toshiba Memory sale

Argyle Street says chip unit worth up to double its $18bn price tag

Chinese antitrust authorities are expected to decide by May 28 whether to approve the sale of Toshiba's memory operations. (Photo by Takuya Imai)

TOKYO -- Activist fund Argyle Street Management has mobilized against Toshiba's sale of its memory chip business as the deal awaits Chinese antitrust approval, arguing the transaction undervalues the profitable operations.

Kin Chan, chief investment officer of the longtime Toshiba shareholder, urged the Japanese electronics conglomerate in a letter to reconsider its plans to sell Toshiba Memory. Toshiba accepted an offer of 2 trillion yen ($18 billion) for the operations in September from a consortium led by U.S. private-equity firm Bain Capital.

But Hong Kong-headquartered Argyle says that price is too low for the mainstay of Toshiba's earnings.

Toshiba Memory, the world's No. 2 producer of flash memory behind Samsung Electronics, supplies 90% of the parent's consolidated operating profit. Though a slowdown in the smartphone market clouds prospects for NAND memory demand, Argyle said that the unit remains competitive and could fetch 3 trillion yen to 4 trillion yen.

Chan also noted changes in Toshiba's shareholder base since the company decided in February 2017 to sell a majority stake in its memory operations. A 600 billion yen share sale in December drew activist funds such as Elliott Management and Daniel Loeb's Third Point, as well as Singapore-based Effissimo Capital Management, linked to famously tough Japanese investor Yoshiaki Murakami. Effissimo alone bought 14% of the shares on offer.

Given the influx of fresh capital, Argyle says the sale of the memory operations should be put to another general shareholders meeting. The fund has taken to the media to try to rally other activist investors to its cause. Toshiba also has an estimated 300,000 individual investors to be swayed.

The Toshiba Memory sale remains on hold pending the decision by Chinese antitrust authorities, expected by May 28. But a green light is not guaranteed. Toshiba has told its main creditor banks that alternative options are being considered in case the sale falls through. A stock market debut for Toshiba Memory is said to be under discussion.

These rumors have enticed some: It came to light Monday that another American fund has amassed a stake of over 5% in Toshiba. But the Japanese company's creditors remain ready to fight for the sale, which was prompted by crippling losses in Toshiba's U.S. nuclear power business.

Banking groups including Sumitomo Mitsui and Mizuho extended Toshiba a financial lifeline that they want repaid. Toshiba recently installed Nobuaki Kurumatani, a former Sumitomo Mitsui banker, as its new CEO.

Last year's capital increase removed worries of a forced delisting from the Tokyo Stock Exchange, the primary motivation for selling the flash memory business.

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