Japanese Toshiba Corp announced over the weekend its plans of selling new shares at a 10 percent discount to its closing price last Friday to foreign investors including Elliott Management and Harvard Management in order to raise $5.4 billion (¥600 billion).
The planned $5.4 billion new share issue to overseas investors is set to provide it with most of the funds it needs to avoid a delisting – a quickly arranged deal that underscores both the weakness of its finances and the allure of its chips unit.
The share issue, decided at a board meeting Sunday, is equivalent to a 35 percent stake in the embattled Japanese conglomerate and will see more than 30 overseas investors, including Third Point LLC, Oasis Management Company and Cerberus Capital Management, take part.
The deal, engineered by Goldman Sachs, was structured for overseas investors as Toshiba has only recently come off a Tokyo Stock Exchange watchlist it had been on after a 2015 accounting scandal, making it difficult for domestic firms to invest.
Together, the foreign investors will own around a third of one of Japan’s most famous corporate names once the deal is completed in two weeks.
Burdened by billions of dollars in liabilities at its bankrupt U.S. nuclear reactor maker Westinghouse, Toshiba has been seeking to make up the difference by the end of the financial year in March or face a delisting. A long and contentious auction for its $18 billion chip unit has meant it cannot rely on those funds coming in on time.
Toshiba stood at negative $5.5 billion as of the end of September and it has been trying to sell its share of its prized memory-chip business to a consortium led by Bain Capital for $18 billion.
However, the deal still has to go through various regulatory approval processes. More important, Western Digital, Toshiba’s partner in the chip joint venture, is seeking to block the deal, insisting on its right to veto any transaction.
The cash that Japanese conglomerate will raise from its share sale means its listing status won’t hinge on whether and when the sale of its chip business is completed.
It will also enable the company to fully disentangle itself from the mess caused by the collapse of Westinghouse, its nuclear-energy subsidiary that filed for bankruptcy in March following billions of dollars of losses. Toshiba has hinted that it may even be able to return capital to shareholders if the memory-chip business sale goes ahead.
Although sales of memory chips accounted for nearly all of Toshiba’s operating profit in the six months through September, the future still looks brighter for Toshiba and its future investors if the chip business sale didn’t go through.
After all, under the sale agreement with Bain, Toshiba would have only a 40 percent stake in the company that would own the memory business in the future, a company that would be loaded up with debt.
Toshiba’s new shareholders are hoping Western digital can do them a favor.