Toshiba, Like GE, Plans to Split Into Three Units

The move, following shareholder pressure for a more-focused structure, adds up to a de facto dismantling of a conglomerate whose roots date to 1875

Toshiba Corp said it planned to split into three by March 2024 in response to shareholder pressure for a more-focused structure, following a similar path taken by fellow industrial conglomerate General Electric Co.

Under the plan, one of the three units will focus on infrastructure and a second on electronic devices such as power semiconductors. The third, which will retain the Toshiba name, will manage the company’s stake in flash-memory company Kioxia Holdings Corp. and other assets.

The split comes after Toshiba unloaded other divisions in recent years, including medical devices, personal computers, consumer electronics and its U.S. nuclear-power unit, Westinghouse Electric, which declared bankruptcy in 2017.

The Toshiba board’s strategy committee said it envisioned further asset disposals by the units and described extensive contacts with private-equity firms interested in buying parts of the company.

Together, the moves add up to the de facto dismantling of a conglomerate whose roots date to 1875. Its broad lineup of industrial and consumer businesses once made it a Japanese equivalent to GEa major Toshiba shareholder before World War II—and Germany’s Siemens AG .

GE said Tuesday it would split itself into three, while Siemens has gradually broken up its units in recent years.

“You may call this a dissolution, but I see it as an evolution to the future,” said Toshiba Chief Executive Satoshi Tsunakawa.

Mr. Tsunakawa said the split-up plan would make operations more flexible by separating infrastructure businesses with a long time horizon, such as water treatment systems, from the unit making high-tech electronic parts, which he said required quick decision-making and heavy investment.

A handful of Japanese companies, led by Hitachi Ltd. , have maintained the conglomerate structure, but Toshiba was driven to more thorough restructuring by a series of crises. They started with an accounting scandal in 2015 and resulted in foreign-based shareholders owning more than half of the company.

Those shareholders helped oust the board’s chairman this year and produced a board dominated by financiers and executives with overseas experience.

Toshiba said it expected revenue at the infrastructure company to be around ¥2 trillion, equivalent to about $17.5 billion, and slightly less than half that amount at the electronic device company. It plans to hold a special shareholder meeting between January and March next year to seek approval for the split.

The board’s strategy committee, led by former KPMG Hong Kong partner Paul Brough, said it talked with private-equity funds about Toshiba. None wanted to buy the whole company but several were interested in parts of it, the committee said, adding that talks with those funds could now progress more easily.

“A significant amount of groundwork has already been undertaken with credible private-equity funds who have invested the time and resources in developing privatization plans for Toshiba,” the committee said.

It acknowledged that some shareholders would have preferred to auction off all of Toshiba to the highest private-equity bidder, but it said shareholders would benefit more if Toshiba itself takes steps to add value quickly. The committee said it wanted to cash in Toshiba’s holding in Kioxia, the memory-chip maker formerly known as Toshiba Memory, as soon as possible and return the proceeds to shareholders.

Toshiba shares surged in April on news of a possible buyout offer from CVC Capital Partners. The company later rebuffed it, saying it didn’t have enough detail.

At least initially, the three parts of Toshiba will each consist of diverse businesses that don’t necessarily have clear synergies. The infrastructure unit, in particular, includes water treatment, trains, power turbines, nuclear-plant maintenance and elevators among its businesses.

That compares with GE’s breakup, in which each of the three resulting companies has a clear focus medical devices, power systems and aircraft engines.

Mr. Tsunakawa said Toshiba continues to review its business portfolio. “This is not our final form. It is just the beginning,” he said.

Toshiba stock closed down 1.3% at ¥4,872, equivalent to $42.71, in Tokyo trading Friday, ahead of the announcement of the split plan.

A report released in June found evidence of broad collaboration between now-departed Toshiba executives and officials at the Ministry of Economy, Trade and Industry to stifle foreign shareholders’ voices ahead of an annual shareholder meeting in July 2020. One executive wrote an email saying that the group’s way of dealing with those shareholders was to “beat them up,” investigators found.

“Toshiba lost trust after its accounting scandal came to light, and it said it reformed itself. And yet, it had another problem. It is a good decision to break up into three pieces and rebuild its governance,” said Rakuten Securities strategist Masayuki Kubota.


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