Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Event-Driven

Toshiba and Fujitsu have lagged Hitachi in addressing their listed subsidiaries and have followed weaker processes in their resolution in our view. As the two conglomerates move forward we wonder whether it might make sense for Toshiba to acquire Fujitsu General and for Fujitsu to acquire Toshiba Tec.

Toshiba and Fujitsu have lagged Hitachi in addressing their listed subsidiaries and have followed weaker processes in their resolution in our view. As the two conglomerates move forward we wonder whether it might make sense for Toshiba to acquire Fujitsu General and for Fujitsu to acquire Toshiba Tec.

Toshiba Tec – Thinking About a Toshiba Tec for Fujitsu General Swap

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

On Friday 14 May, <a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba Corp (6502 JP)</a> announced...<ol>
<li>full-year results (<a href="https://www.toshiba.co.jp/about/ir/en/finance/er/er2020/q4/ter2020q4e.pdf" target="_blank" rel="noopener">release</a>, <a href="https://www.toshiba.co.jp/about/ir/en/pr/pdf/tpr2020q4e.pdf" target="_blank" rel="noopener">presentation</a>) to March 2021,</li>
<li>forecasts to March 2022 (in the previous two links),</li>
<li>a <a href="https://www.toshiba.co.jp/about/ir/en/pr/pdf/tpr2020q4e_2.pdf" target="_blank" rel="noopener">presentation</a> on management policy in the next Mid-Term Plan, which is due to be announced in October 2021</li>
<li>that the Board had <a href="https://www.toshiba.co.jp/about/ir/en/news/20210514_3.pdf" target="_blank" rel="noopener">resolved to establish a Strategic Review Committee</a> using UBS as financial advisor to... <ul>
<li>Engage in dialogue to listen to the opinions of shareholders, other stakeholders and outside experts;</li>
<li>Verify management's proposals on business and financial strategy while taking into due consideration the information gathered;</li>
<li>Make recommendations to the Board regarding the Company's business and financial strategy based on the Committee's conclusions;</li>
<li>Explain the resulting Board resolutions to shareholders. <div><div><div></div></div></div>
</li>
</ul>
</li>
<li>
<a href="https://www.toshiba.co.jp/about/ir/en/news/20210514_2.pdf" target="_blank" rel="noopener">four new directors</a> to replace two outgoing directors, with 3 of the four new directors being "outside directors". As previously discussed in these pages, Yoshiaki Fujimori who was at CDC with Kurumatani-san has resigned as a director. Yuki Furuta has resigned as well. </li>
<li>a ¥70/share <a href="https://www.toshiba.co.jp/about/ir/en/news/20210514_1.pdf" target="_blank" rel="noopener">dividend</a> for the year ending 31 March 2021. </li>
<li>¥150bn of <a href="https://www.toshiba.co.jp/about/ir/en/news/20210514_1.pdf" target="_blank" rel="noopener">"additional shareholder return"</a> of unspecified return method, with details to be announced in early June. </li>
</ol>Separately, there was a report later Friday that sub <a href="https://www.smartkarma.com/entities/toshiba-tec-corp" target="_blank" data-smartkarma-citation="entities:17697:1" rel="noopener">Toshiba Tec (6588 JP)</a> got hit by a ransomware attack by DarkSide - the same group which hit the Colonial pipeline.There is a little bit for everyone, except for people who were hoping that earnings and forecasts would be better than expected. But there is a lot to parse.

On Friday 14 May, Toshiba Corp (6502 JP) announced...
full-year results (release, presentation) to March 2021,
forecasts to March 2022 (in the previous two links),
a presentation on management policy in the next Mid-Term Plan, which is due to be announced in October 2021
that the Board had resolved to establish a Strategic Review Committee using UBS as financial advisor to... 
Engage in dialogue to listen to the opinions of shareholders, other stakeholders and outside experts;
Verify management's proposals on business and financial strategy while taking into due consideration the information gathered;
Make recommendations to the Board regarding the Company's business and financial strategy based on the Committee's conclusions;
Explain the resulting Board resolutions to shareholders. 




four new directors to replace two outgoing directors, with 3 of the four new directors being "outside directors". As previously discussed in these pages, Yoshiaki Fujimori who was at CDC with Kurumatani-san has resigned as a director. Yuki Furuta has resigned as well. 
a ¥70/share dividend for the year ending 31 March 2021. 
¥150bn of "additional shareholder return" of unspecified return method, with details to be announced in early June. 
Separately, there was a report later Friday that sub Toshiba Tec (6588 JP) got hit by a ransomware attack by DarkSide - the same group which hit the Colonial pipeline.There is a little bit for everyone, except for people who were hoping that earnings and forecasts would be better than expected. But there is a lot to parse. 

Toshiba Results & Shareholder Return - Possibly Big Impact Buyback Coming

President

Thomas Coughlin

Coughlin Associates

Thematic (Sector/Industry)

HDDs for nearline storage showed considerable capacity growth between C4Q 2020 and C1Q 2021 with significant increases in average storage capacity per drive.  Average sales prices also were higher due to the sale of more high-capacity HDDs.  Market share between the three HDD manufacturers was little changed Q2Q.  HDDs remain the major storage media for the world’s digital content.

HDDs for nearline storage showed considerable capacity growth between C4Q 2020 and C1Q 2021 with significant increases in average storage capacity per drive.  Average sales prices also were higher due to the sale of more high-capacity HDDs.  Market share between the three HDD manufacturers was little changed Q2Q.  HDDs remain the major storage media for the world’s digital content.

Today, <a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba Corp (6502 JP)</a> announced that it had received a letter from CVC yesterday which did not provide a followup proposal with any detail worth evaluating, but instead contained a statement that "CVC would step aside to await our guidance as to whether a privatization of Toshiba would suit management’s and the Board of Directors’ strategic objectives."There is a one-plus page <a href="https://www.toshiba.co.jp/about/ir/en/news/20210420_1.pdf" target="_blank" rel="noopener">statement</a> (linked here and attached below) from Toshiba. It is carefully written and worth parsing. It is also worth understanding what is in there for investors.

Today, Toshiba Corp (6502 JP) announced that it had received a letter from CVC yesterday which did not provide a followup proposal with any detail worth evaluating, but instead contained a statement that "CVC would step aside to await our guidance as to whether a privatization of Toshiba would suit management’s and the Board of Directors’ strategic objectives."There is a one-plus page statement (linked here and attached below) from Toshiba. It is carefully written and worth parsing. It is also worth understanding what is in there for investors. 

CVC Suspending Its Bid Is Just That - The Cat Is Still Out Of the Bag

Things are heating up.Some might say after today that Kurumatani-san is on the hot seat feeling considerably toasty.Over the weekend, there were more noises as the Nikkei reported that Toshiba would "take the CVC bid seriously", had set up an internal review committee to be chaired by a Vice President, and that the approvals would be expected by early summer, a Tender Offer would start in July, and if successful, Toshiba would be delisted in October. This morning there is a <a href="https://www.nikkei.com/article/DGXZQOUB1117Z0R10C21A4000000/?unlock=1" target="_blank" rel="noopener">report</a> that the large increase in position by Singapore-based (and as the Nikkei describes them "noisy shareholder" 3D Investment Partners reported in the previous insight was in fact 3D purchasing the stake from Harvard Investment Management. This is important because 3D voted against Kurumatani-san last year as director and later asked the firm to investigate vote-counting irregularities. Harvard,  with 4.7%, abstained, reportedly after former GPIF CIO Hiromichi Mizuno - champion of governance and stewardship while at GPIF and then-special advisor to METI - communicated with Harvard and voiced the possibility that if they voted against Kurumatani-san there could be a probe based on the idea that if shareholders coordinate to vote without declaring joint ownership, there can be issues (Reuters <a href="https://www.reuters.com/article/toshiba-board-idUSKBN28X0O6" target="_blank" rel="noopener">report</a>, FT <a href="https://www.ft.com/content/bdfff63b-93a4-451c-a98f-a22548106327" target="_blank" rel="noopener">article</a>).Now there appears to be no issue of a Harvard abstention and clear increase in voting power for shares held by those who would challenge management (with or without Kurumatani-san) on capital and management policy, but to be clear, votes FOR are measured as a percentage of votes PLUS active abstentions. If Harvard actively abstained (rather than passively not voting), then this won't change the support ratio (it would just change the optics). IF the 21.4mm share position moved from passive abstention to active opposition, it would have lowered the votes FOR from 57.98% to 54.46%, but Kurumatani-san would have squeaked through still. The entire situation is great fun. The situation of Toshiba governance has become something of a governance nightmare and with national security issues at stake for a minority of the business, a potential bureaucratic quagmire. But the company is doing decently well, and is long a desirable asset, and there are LOTS of shareholders who are heavily vested in seeing this through. And it appears with the March EGM result that they have a majority. Sitting in the audience, it makes me want to have a squirt gun, rubber gloves, rice, newspaper, and toast. Gotta have toast.

Things are heating up.Some might say after today that Kurumatani-san is on the hot seat feeling considerably toasty.Over the weekend, there were more noises as the Nikkei reported that Toshiba would "take the CVC bid seriously", had set up an internal review committee to be chaired by a Vice President, and that the approvals would be expected by early summer, a Tender Offer would start in July, and if successful, Toshiba would be delisted in October. This morning there is a report that the large increase in position by Singapore-based (and as the Nikkei describes them "noisy shareholder" 3D Investment Partners reported in the previous insight was in fact 3D purchasing the stake from Harvard Investment Management. This is important because 3D voted against Kurumatani-san last year as director and later asked the firm to investigate vote-counting irregularities. Harvard,  with 4.7%, abstained, reportedly after former GPIF CIO Hiromichi Mizuno - champion of governance and stewardship while at GPIF and then-special advisor to METI - communicated with Harvard and voiced the possibility that if they voted against Kurumatani-san there could be a probe based on the idea that if shareholders coordinate to vote without declaring joint ownership, there can be issues (Reuters report, FT article).Now there appears to be no issue of a Harvard abstention and clear increase in voting power for shares held by those who would challenge management (with or without Kurumatani-san) on capital and management policy, but to be clear, votes FOR are measured as a percentage of votes PLUS active abstentions. If Harvard actively abstained (rather than passively not voting), then this won't change the support ratio (it would just change the optics). IF the 21.4mm share position moved from passive abstention to active opposition, it would have lowered the votes FOR from 57.98% to 54.46%, but Kurumatani-san would have squeaked through still. The entire situation is great fun. The situation of Toshiba governance has become something of a governance nightmare and with national security issues at stake for a minority of the business, a potential bureaucratic quagmire. But the company is doing decently well, and is long a desirable asset, and there are LOTS of shareholders who are heavily vested in seeing this through. And it appears with the March EGM result that they have a majority. Sitting in the audience, it makes me want to have a squirt gun, rubber gloves, rice, newspaper, and toast. Gotta have toast. 

Gaming Out a CVC Bid for Toshiba - The Right Noises, The Wrong Price, and Toast

Japan

TOSHIBA TEC CORPORATION manufactures electronic equipment for distribution system, document processing, and household use.  The Company's products include Point of Sale (POS) systems, bar code scanners, copy machines, printers, and vacuum cleaners.

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Toshiba Tec (6588 JP)

Toshiba Tec – Thinking About a Toshiba Tec for Fujitsu General Swap

With Fujitsu and Toshiba still having to address their listed subsidiaries we wonder whether it might make sense for Toshiba to acquire Fujitsu...

Mio Kato

Toshiba Results & Shareholder Return - Possibly Big Impact Buyback Coming

Toshiba Earnings mixed, Forecasts lackluster, the MTMP content is iffy, but a higher div is promising and ¥150bn "Return to Shareholders" is good,...

Travis Lundy

HDD C1Q Total Down but Nearline Up

HDDs for nearline storage showed considerable capacity growth between C4Q 2020 and C1Q 2021 with significant increases in average storage capacity...

Thomas Coughlin

CVC Suspending Its Bid Is Just That - The Cat Is Still Out Of the Bag

CVC has stepped on the brakes. That's stupid. Reputation- and business-wise. But the cat is out of the bag. Toshiba has categorically stated it is...

Travis Lundy

Gaming Out a CVC Bid for Toshiba - The Right Noises, The Wrong Price, and Toast

Toshiba's PE Fund suitor has detailed a timeline, and help from the DBJ and JIC with funding, would also provide a voting rights fallback....

Travis Lundy

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