Toshiba to split into three standalone businesses

Toshiba Corporation has announced it will be splitting itself up into three standalone companies — Infrastructure Service Co, Device Co, and Toshiba — in hopes that will help deliver sustainable profit growth as well as enhance shareholder value and trust.

The company outlined Infrastructure Service Co will consist of Toshiba’s energy systems, infrastructure systems, building solutions, and digital solutions businesses. 

Its products and services will include IT solutions for government agencies and private companies, power generation, transmission and distribution, renewable energy, energy management, systems solutions for public infrastructure, railways and industry, and building energy-saving solutions.  

Device Co, meanwhile, will comprise Toshiba’s electronic devices and storage solutions business where its products will include power semiconductors, optical semiconductors, analog integrated circuits, high-capacity hard disk drives for data centres, and semiconductor manufacturing equipment.

As for Toshiba, it will hold shares in Kioxia Holdings Corporation (KHC) and Toshiba Tec Corporation. As part of the separation, Toshiba will convert the shares of KHC into cash.

Toshiba added for FY21, it expects Infrastructure Service Co will deliver net sales of ¥2 trillion and is projected to grow at a 3.3% compound annual growth rate (CAGR). Device Co will post ¥870 billion in net sales and is projected, when excluding the memory resale portion, to grow at a CAGR of 3.3%, reaching ¥880 billion by FY23.

The separation was unanimously approved by Toshiba’s board and forms part of a plan that was devised from a recommendation made by the board’s strategic review committee. The committee outlined in a letter to shareholders [PDF] that the separation plan “is only the beginning of a process that contemplates a significant transformation of each independent company, positioning them better for sustained profitable growth while securing near-term returns for shareholders”.

“In order to enhance our competitive positioning, each business now needs greater flexibility to address its own market opportunities and challenges,” Toshiba interim chair, president, and CEO Satoshi Tsunakawa said.  

“We are convinced that the business separation is attractive and compelling: it will unlock immense value by removing complexity, it enables the businesses to have much more focused management, facilitating agile decision making, and the separation naturally enhances choices for shareholders

“Our board and management team firmly believe that this strategic reorganization is the right step for sustainable profitable growth of each business and the best path to create additional value for our stakeholders.”

The separation is expected to be finalised by the second half of FY23, subject to necessary procedures, including shareholder approval.  

The decision comes after months of turmoil within the company, including the ousting of the company’s chairman Osamu Nagayama by shareholders in June.

Another director that was part of Toshiba’s audit committee, Nobuyuki Kobayashi, was also ousted during the vote by shareholders during the company’s annual general meeting (AGM).

It was the first AGM since an independent investigation [PDF], passed by shareholders, revealed the company colluded with Japanese officials to prevent certain shareholders from exercising their voting rights at last year’s annual general meeting.

Nagayama previously penned an open letter stating his “deep regret” about Toshiba’s conduct and pledged to be an agent of positive change.

The investigation, conducted by three lawyers, found Toshiba “devised a plan” with Ministry of Economy, Trade and Industry officials to prevent Effissimo Capital Management, which holds 9.9% of Toshiba shares, from exercising certain shareholder proposals at Toshiba’s annual general meetings.

As part of announcing the separation plan, Toshiba said each newly created business would be led by a separate board of directors and management team.

“The boards of the new companies are expected to be majority independent and comprised of a diverse set of directors with the skills and experience to set strategy and hold management accountable,” the company assured.

“Separation of the leadership structures for these businesses will facilitate more agile decision-making, with greater focus and knowledge of the company’s customers and employees, and create optionality for both new companies to make their own separate and informed decisions regarding potential strategic partners.”

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