TOKYO -- Toshiba shareholders approved the conglomerate's plans to spin off its chip business, an important step in the 140-year-old corporation's battle to find a path back to recovery.
The decision was reached on Thursday at an extraordinary general meeting of shareholders in Chiba. The meeting came a day after Toshiba announced that it will fall further into negative net worth in the current fiscal year, through Friday, after Westinghouse Electric, a nuclear subsidiary, filed for bankruptcy protection in the U.S.
The spinoff of its valuable chip business into a separate entity, scheduled for Saturday, paves the way for Toshiba to sell majority stakes to outside businesses -- and to use the proceeds to emerge from negative net worth in fiscal 2017, through next March.
Under Tokyo Stock Exchange rules, a company faces de-listing if it cannot climb out of negative net worth a year after falling into that territory.
Satoshi Tsunakawa, president of Toshiba, told shareholders that the company was planning to "take [the company] out of negative net worth within fiscal 2017" through the spinoff. He added that the company will likely be demoted to the second tier of the Tokyo Stock Exchange on Aug. 1, as Toshiba will finish the current fiscal year with a negative net worth. Tsunakawa also said that the company will strive to avoid de-listing.
Buoyed by the news, shares in Toshiba surged in Thursday's trading, ending the day up 4% at 228.20 yen.
The first round of competitive bidding for Toshiba's memory chip business closed on Wednesday, attracting 10 or so possible buyers. Bidders include U.S's Western Digital, which partners with Toshiba on NAND flash memory production, and South Korean competitor SK Hynix. Other reported suitors include Taiwan's Hon Hai Precision Industry, known as Foxconn, as well as European and U.S. investment funds.
Toshiba has valued the memory business at 1.5 trillion to 2 trillion yen ($13.5 billion to $18 billion), but Tsunakawa stressed at a press conference on Wednesday that the company was assuming a price of at least 2 trillion yen.
However, the offers to date have been rather low, with some bidders saying they cannot pay even 1.5 trillion yen. Investment funds, seeking to reap capital gains by taking the business public or selling off the stake later, are skeptical of the market climate going forward and are tendering lower bids.
Some bidders have already offered around 2 trillion yen, but Toshiba will weigh its options based on various considerations, such as creating synergies and retaining jobs at the memory unit.