Toshiba split proposal dealt blow after proxy advisor rejects plan

Toshiba’s proposal to split into two companies has been dealt a blow after a prominent shareholder advisory firm came out against the plan.

Institutional Shareholder Services (ISS) urged investors in the Japanese conglomerate to reject the proposal, it said in a report dated March 9.

“The spin-off option offers upside to the status quo, but the associated execution risks do not allow for an inescapable conclusion that the split is superior to a privatization,” ISS said in the report.

The proxy adviser also went against a proposal from one of Toshiba’s largest investors, 3D Investment Partners, for the company to review other options, including the sale of the company. ISS described the proposal as “premature”.

The matters are slated to go to a shareholder vote on March 24.

Toshiba shares rose as much as 5.5 per cent in Thursday trading in Tokyo.

Once among Japan’s most revered companies, Toshiba has been in crisis mode for years due to repeated scandals and management missteps. It invented flash memory for computing, but had to sell control of its crown jewel semiconductor business to pay for a disastrous expansion in nuclear power.

Last month, Toshiba scrapped a proposal to divide into three listed companies, deciding to separate into two instead. The original plan faced stiff opposition from large shareholders including 3D.

Instead, the company intends to spin off its devices business, which includes semiconductors, and list it, arguing a two-way split would be cheaper and smoother than the original plan. Toshiba will also sell a 55 per cent stake in air-conditioning business Toshiba Carrier Corp to its United States joint venture partner Carrier Global for about 100 billion yen (S$1.2 billion), the company said at the time.

Chief executive Satoshi Tsunakawa resigned earlier this month in the latest twist in a turbulent time for the company. His replacement Taro Shimada has vowed to push ahead with the break-up plan, with Toshiba positioning the change of leadership as a way to prepare for the split.

Before he resigned, Mr Tsunakawa said he opposed going private because it could result in the company losing orders from utilities and local governments and would force it to sell sensitive technology in areas such as nuclear, defence and cyber security. Bloomberg