Toshiba’s biggest shareholder comes out against plan to split company in two

Toshiba’s hopes for a quick end to its protracted battle with shareholders suffered a new setback after its largest investor and a major proxy advisory firm both took a definitive stance against a plan to split the company in two.

The opposition from secretive Singapore-based fund Effissimo Capital Management, which owns 10.4 per cent of Toshiba, and from Institutional Shareholder Services has emerged two weeks ahead of a critical shareholder vote.

It also follows the sudden resignation last week of Toshiba’s chief executive and two other figures known to be strongly against the company being taken private, an alternative outcome backed by several of its largest shareholders and some senior management.

An extraordinary general meeting on March 24 will allow shareholders to vote on a management-backed plan that would split one of Japan’s most famous industrial names in two, spinning off its devices and semiconductor business and listing that separately. The remaining business would include, among many other subsidiaries, its nuclear and infrastructure divisions.

In a press release, Effissimo said that such a major overhaul could be risky. “Any error in judgment here would yield irrevocable consequences,” said the statement, which added that Effissimo would vote against the plan.

It also questioned whether Toshiba had the management resources to make a success of the split and noted that the EGM was being held before the newly appointed chief executive had even received a vote of confidence from shareholders at an AGM.

At the same time, a report from ISS also recommended investors vote against the plan. “While strategic reorganization is an improvement in the status quo, it remains unclear based on information disclosed so far whether the implementation risk compensates investors versus other alternatives,” ISS’s head of Japan Research Takeyuki Ishida wrote in the report.

The plan for a two-way split emerged in February after the company abandoned a more complex three-way split idea that many of the company’s largest shareholders told the company they would vote against.

Because Toshiba’s shareholders include an unusually large number of activist funds for Japan, some of whom want the company to be taken private, there has been a lengthy stand-off over what course the company should pursue.

Along the way, shareholders have won a series of groundbreaking victories over Toshiba’s management, forcing key executives to step down and the company to establish a strategic review committee to assess the options.

“We will continue to make every effort to explain our proposal to shareholders to gain their support,” Toshiba said, in response to the Effissimo and ISS comments.