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Toshiba gets its own taste of investor impatience

Toshiba’s new boss, Taro Shimada, will be getting a sense of what his own aggrieved shareholders must be feeling. The Japanese conglomerate, which abruptly changed chief executives amid a controversial restructuring, wants memory-chip maker Kioxia and controlling owner Bain Capital to revive plans for an initial public offering, but only has so much say with a 41% stake. At least the buyout shop will prioritise maximising value.

Since Kioxia was spun out in 2018 and subsequently yanked a highly anticipated market debut, its fate has largely been eclipsed by the larger Toshiba mess. That may not be the case for much longer: Shimada, who took over from Satoshi Tsunakawa on March 1, is sticking with a breakup plan that includes returning up to $2.6 billion to shareholders over the next two years, including from offloading non-core assets such as Kioxia.

Toshiba has conceded the timing for a Kioxia share sale is up to Bain, which led the $19 billion buyout. Russia’s invasion of Ukraine has roiled markets, but the chipmaker’s financial performance has improved since U.S. sanctions against Huawei, a major Kioxia customer, disrupted business. In the three months to December, Kioxia swung to a profit from a net loss in the same quarter in 2019.

Moreover, the outlook for NAND memory chip prices, which have been falling since mid-2021, is brightening. Rival Micron said in December it expects demand to rise 30% in 2022 and shipment growth to be stronger over the next six months.

The U.S. company and other peers trade on average at less than 9 times operating profit for the last 12 months, per Refintiv. Applying that multiple to Kioxia’s 2021 adjusted operating profit, a roughly comparable figure, implies an enterprise value of nearly $21 billion. Back out Kioxia’s net debt as of June 2020 and the equity would be worth around $9 billion. At that valuation, half of Toshiba’s stake would generate $1.9 billion of pre-tax proceeds, potentially helping Shimada exceed the shareholder return target.

Even that may not be enough, given the widespread displeasure over Toshiba’s plan to split and the preference by some that it pursue a potential sale to private equity. Although Toshiba can only await a decision on Kioxia, it is also comfortably safe knowing that Bain’s aim is to make as much money as possible. Toshiba’s shareholders can’t necessarily feel the same about Shimada. Reuters

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