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Business deals

Toshiba receives offer from CVC to go private in $20bn deal

Buyout firm's proposal includes 30% premium on Japan group's share price

Toshiba has frequently butted heads with activist investors over governance issues. (Photo by Yoshiyuki Tamai)

TOKYO -- Global private equity firm CVC Capital Partners has proposed a deal to privatize Toshiba through a tender offer that is expected to be worth more than $20 billion, Nikkei learned Tuesday.

Toshiba CEO and President Nobuaki Kurumatani on Wednesday morning confirmed the report by Nikkei, telling reporters the "offer has come" and that the company's executives would "discuss [the offer] at a board meeting" the same day.

CVC is considering a 30% premium over the Japanese industrial group's undisturbed share price, which would put the value of the deal at nearly 2.3 trillion yen ($20.8 billion) based on Tuesday's close. The equity firm will consider recruiting other investors to participate in the acquisition.

The proposal aims to speed up decision-making at a company that has frequently butted heads with activist investors as it tries to turn itself around following a string of scandals and heavy losses over the past several years. It represents a rare case of one of Japan's best-known businesses weighing a retreat from public markets.

Toshiba in a statement on Wednesday said the company received an initial proposal on Tuesday and that it will "ask for further clarification and give it careful consideration."

The company's share price leapt in Tokyo and U.S. on the news of the possible deal.

Trading in Tokyo was temporarily halted on Wednesday after Nikkei's report but resumed after Toshiba's statement. Shares were untraded with a glut of buy orders before closing up 18% at 4,530 yen, which is the upper end of the daily trading range. It is the stock's highest mark since December 2016.

In the U.S., Toshiba's ADR rose almost 20% to $21.50 just before 2 p.m. EDT.

Kurumatani, the first chief appointed from outside the company in 53 years, had served as deputy president at Sumitomo Mitsui Financial Group before moving on to become president of CVC's Japanese branch.

The private equity firm plans to launch the tender offer if it can get the green light from regulators. The Finance Ministry would need to screen the deal in advance, under legislation implemented last year that imposes tougher scrutiny on foreign investment in companies involved in sensitive fields such as nuclear technology -- a provision aimed mainly at China.

Katsunobu Kato, the Chief Cabinet Secretary in Japan's government, said at a press conference on Wednesday that "it is important that a management structure that can stably continue business is established or maintained" in relation to any takeover bid.

"In general terms, foreign investors will need to follow procedures under the Foreign Exchange and Foreign Trade Act when acquiring Japanese companies engaged in businesses related to critical infrastructure," Kato said. Toshiba is involved in nuclear power and other industries that the government considers to be particularly important.

If the deal succeeds, it will close the curtain on the dramatic public travails of a titan of corporate Japan.

Toshiba's decline began several years ago with accounting fraud and billions of dollars of losses surrounding a U.S. nuclear subsidiary that sent the company into a tailspin.

In 2017, faced with the prospect of delisting from the Tokyo Stock Exchange after two years of negative net worth, Toshiba raised 600 billion yen in a capital increase that activist investors flocked to.

In the ensuing years, the company has been criticized for further governance problems including fake transactions that inflated profit at a subsidiary, as well as clashed with some investors over its use of capital. Kurumatani received only 58% support for his reappointment at last year's general shareholders meeting.

Singapore-based Effissimo Capital Management, Toshiba's top shareholder, submitted its own set of proposed directors at that meeting. The proposal failed, but it later came to light that a number of votes received beforehand were improperly voided. Effissimo demanded an extraordinary shareholders meeting to call for an investigation, which was approved last month.

The tender offer would limit conflicts with activist investors by leaving the company with a single shareholder.

Effissimo declined to comment on Wednesday.

Toshiba, which spun off and sold a majority stake in its cash-cow memory business during its turnaround, has been narrowing its focus and exiting unprofitable businesses to bolster its earnings.

The strategy has paid off, with operating profit surging roughly 270% in fiscal 2019, and the company made a long-awaited return to the TSE's first section this year. It looks to focus on fields such as renewable energy and infrastructure to drive future growth.

CVC, which has offices in 23 countries and $117.8 billion in assets under management, also recently acquired the personal-care business of Shiseido. It was previously involved in a management buyout of Japanese restaurant chain operator Skylark in 2006.

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