Makiko Yamazaki

TOKYO, Reuters – Japan’s Toshiba Corp (OTC) faces a crucial shareholder vote on Thursday. It has very high odds of winning support for the plan to spin off its devices business.

Its three largest shareholders – Effissimo Capital Management, 3D Investment Partners and Farallon Capital Management – all activists shareholders with whom Toshiba management has had a troubled history – opposed the plan. Proxy advisory firms Institutional Shareholder Services ISS and Glass Lewis also oppose it.

The proposal of Singapore-based 3D, which calls for Toshiba buyouts from private equity, is also being considered. It has been supported by Effissimo, Farallon and Glass Lewis, but perhaps not ISS.

To pass a proposal, it must receive 50% of the votes.

Whatever the outcome of Thursday’s vote, it is yet another battle in an ongoing scandal-ridden four-year conflict between conglomerate shareholders (146 years old) and activists for the control of the company.

The Toshiba management believes that a spin-off will be the most effective way to maximize shareholder value. According to sources familiar with the situation, Toshiba also hopes that the plan will increase its share price enough to attract activist shareholders.

Toshiba rejected requests to buy out private equity investors. It claimed that the offers made so far weren’t compelling enough and could cause concerns over its business and employee retention.

However, there has been a lot of opposition to Toshiba’s plans. Effissimo 3D, Farallon and Farallon together control around 25% of Toshiba. The total amount of foreign investment in the conglomerate is estimated at 30% for all funds, while overseas investors hold 50%.

Notable institutional investors that have publicly voted against spin-offs include Norway’s sovereign wealth funds, California’s Public Employees Retirement System, and the State Board of Administration of Florida, with a 0.222% stake.

BlackRock (NYSE) has more than 5% of its assets, Elliott Management has almost 5% according to reports, and Vanguard has 2.6%, according to Refinitiv Data.

No major Japanese asset manager has revealed its voting intentions.

Unevident SUPPORT FOR A 3D PROPOSAL

Hedge fund investors will likely be encouraged to push for a buyout if the spin-off proposal is rejected. Sources familiar with the situation told Reuters that even if management prevails, shareholders will continue to fight, despite this, on condition of anonymity.

Toshiba indicated that they will make every effort possible to get shareholder support for the plan’s dissolution.

Fumio, Okasan Securities’ chief strategist, stated that “large shareholders” will not stay if share prices increase.

A private equity solution may be the best option for shareholders looking to exit quickly with strong returns but it might not be ideal for Toshiba, he said.

However, support for 3D is less clear than opposition to Toshiba spin-off plans.

CalPERS voted against the proposal in addition to ISS’s advice.

However, Norway’s sovereign wealth and Hong Kong-based activist funds Oasis Management and Toshiba External Director Raymond Zage voted for the motion. Zage is an adviser to Farallon who claims he is among the top 100 shareholders and that he has reacted against the public stance taken by the board.

Toshiba’s management is under severe pressure by activist funds. In 2017, Toshiba sold 600 billion Japanese yen (about $5 billion) stock to many foreign hedge fund dozens during the financial crisis that erupted from its U.S. nuclear plant bankruptcy.

The two-year old conflict between them has reached boiling point at several points. Last June a shareholder-commissioned probe found Toshiba colluded with Japan’s trade ministry – which sees the conglomerate as a strategic asset due to its nuclear reactor and defence technology – to block overseas investors from gaining influence at its 2020 shareholder meeting.

($1 = 120.4 yen)