Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Toshiba Plant Systems & Services / Event-Driven

140 odd years ago in 1875, a prolific inventor and tinkerer named Tanaka Hisashige (who was at the time already an old man having been born in Kansei 11 (寛政11) or 1799 to you and me) set up a factory in Ginza to manufacture telepraphic and switching equipment.  That factory was called Tanaka Seisakusho or Tanaka Manufacturing.
Several years later his son set up a second factory in the Shibaura section of Tokyo called Shibaura Seisakusho. 
They later expanded to make any number of electrical machines to suit Japan's industrialization, as can be seen in the advertisement below (curiously, two of the four companies for which they were 'sole agent' were in the business of supplying gunpowder and armaments; and also curiously coincidentally in the Jiji Newspaper of 11 January 1989).
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/105/875/original/Tanaka%20Hisashige%20Factory.jpg?1573618974" class="editor-image img-responsive" data-smartkarma-image-id="105875"></figure>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/105/876/original/seisakusho.jpg?1573618987" class="editor-image img-responsive" data-smartkarma-image-id="105876"></figure>
They set up a factory in Kyobashi to manufacture lightbulbs early in 1890 and a few years later they  took in capital, and renamed Tanaka Seisakusho to Shibaura Seisakusho. A few years after that as they were making more lightbulbs, they changed legal structure, and their name to Tokyo Incandescent Lightbulb Manufacturing Company, Ltd, changing the name again in 1899 to Tokyo Electrical Company and they became an agent for General Electric (the story behind this is also the story of why Eastern Japan and Western Japan run off different electricity frequencies, but that is for another day).
In 1939, the by-then incorporated heavy equipment company Shibaura Manufacturing merged with Tokyo Electrical Company to become the Tokyo Shibaura Electrical Company, and the modern day Toshiba was born. 
That was then. 80 years later they have been reborn a few times and almost died in 2017 after yet another accounting and loss issue obliged the company to spin out and sell its prize asset, Toshiba Memory. In late 2017 the company issued JPY 600 billion of new shares to capitalize itself and keep shareholder equity above zero so it would not be delisted. In 2018-2019, the company executed a buyback of JPY 700 billion to return that capital to shareholders. That buyback ended last Friday. 
<h2>The New News</h2>
Two nights ago, the Jiji news service had a short article saying Toshiba in final stages of considering making three of its four listed subsidiaries into wholly-owned subsidiaries. That was not entirely unexpected as the company under its Toshiba Next Plan is renewing focus, and a year into the plan is looking at M&amp;A according to management and director comments to investors last month (see <a href="https://www.smartkarma.com/insights/toshiba-buyback-ending-the-next-catalyst-is-restructuring" target="_blank" data-smartkarma-citation="insights:33097" rel="noopener">Toshiba Buyback Ending: The Next Catalyst Is Restructuring</a>). 
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 Tender Offers to buy out minorities of <a href="https://www.smartkarma.com/entities/toshiba-plant-systems-services-corporation" target="_blank" data-smartkarma-citation="entities:15976:1" rel="noopener">Toshiba Plant Systems &amp; Services (1983 JP)</a>, <a href="https://www.smartkarma.com/entities/nuflare-technology-inc" target="_blank" data-smartkarma-citation="entities:9635:1" rel="noopener">Nuflare Technology (6256 JP)</a>, and <a href="https://www.smartkarma.com/entities/nishishiba-electric-co-ltd" target="_blank" data-smartkarma-citation="entities:6193:1" rel="noopener">Nishishiba Electric (6591 JP)</a>. 
This deal comes at a near 50% premium to where the shares were 6 weeks ago. But the stock has underperformed Toshiba since the announcement of when Toshiba sold Toshiba Memory.
While this deal is not that difficult to see over the line, there will be some who will be upset that Toshiba's governance does not extend as far as paying a decent price to minorities. Toshiba Plant has better operating margins than Toshiba has earned in any of the last thirty years on any given rolling 4-quarter basis, and if you looked at a "clean" version of the Toshiba Plant balance sheet and asked Toshiba directors to sell the company for the same multiple they are buying Toshiba Plant, they'd be righteously indignant. 
Japanese shareholders still have a ways to go. 
Much more below the fold. 
<hr>
There are three insights here - this one, an <a href="https://www.smartkarma.com/insights/toshiba-tender-for-nuflare-technology-6256-lightish-to-too-light" target="_blank" rel="noopener">insight</a> on Nuflare Technology, and an <a href="https://www.smartkarma.com/insights/toshiba-tender-for-nishishiba-electric-6591-also-cheap" target="_blank" rel="noopener">insight</a> on Nishishiba Electric.

140 odd years ago in 1875, a prolific inventor and tinkerer named Tanaka Hisashige (who was at the time already an old man having been born in Kansei 11 (寛政11) or 1799 to you and me) set up a factory in Ginza to manufacture telepraphic and switching equipment.  That factory was called Tanaka Seisakusho or Tanaka Manufacturing.
Several years later his son set up a second factory in the Shibaura section of Tokyo called Shibaura Seisakusho. 
They later expanded to make any number of electrical machines to suit Japan's industrialization, as can be seen in the advertisement below (curiously, two of the four companies for which they were 'sole agent' were in the business of supplying gunpowder and armaments; and also curiously coincidentally in the Jiji Newspaper of 11 January 1989).


They set up a factory in Kyobashi to manufacture lightbulbs early in 1890 and a few years later they  took in capital, and renamed Tanaka Seisakusho to Shibaura Seisakusho. A few years after that as they were making more lightbulbs, they changed legal structure, and their name to Tokyo Incandescent Lightbulb Manufacturing Company, Ltd, changing the name again in 1899 to Tokyo Electrical Company and they became an agent for General Electric (the story behind this is also the story of why Eastern Japan and Western Japan run off different electricity frequencies, but that is for another day).
In 1939, the by-then incorporated heavy equipment company Shibaura Manufacturing merged with Tokyo Electrical Company to become the Tokyo Shibaura Electrical Company, and the modern day Toshiba was born. 
That was then. 80 years later they have been reborn a few times and almost died in 2017 after yet another accounting and loss issue obliged the company to spin out and sell its prize asset, Toshiba Memory. In late 2017 the company issued JPY 600 billion of new shares to capitalize itself and keep shareholder equity above zero so it would not be delisted. In 2018-2019, the company executed a buyback of JPY 700 billion to return that capital to shareholders. That buyback ended last Friday. 
The New News
Two nights ago, the Jiji news service had a short article saying Toshiba in final stages of considering making three of its four listed subsidiaries into wholly-owned subsidiaries. That was not entirely unexpected as the company under its Toshiba Next Plan is renewing focus, and a year into the plan is looking at M&amp;A according to management and director comments to investors last month (see Toshiba Buyback Ending: The Next Catalyst Is Restructuring). 
Today, Toshiba Corp (6502 JP) announced Tender Offers to buy out minorities of Toshiba Plant Systems &amp; Services (1983 JP), Nuflare Technology (6256 JP), and Nishishiba Electric (6591 JP). 
This deal comes at a near 50% premium to where the shares were 6 weeks ago. But the stock has underperformed Toshiba since the announcement of when Toshiba sold Toshiba Memory.
While this deal is not that difficult to see over the line, there will be some who will be upset that Toshiba's governance does not extend as far as paying a decent price to minorities. Toshiba Plant has better operating margins than Toshiba has earned in any of the last thirty years on any given rolling 4-quarter basis, and if you looked at a "clean" version of the Toshiba Plant balance sheet and asked Toshiba directors to sell the company for the same multiple they are buying Toshiba Plant, they'd be righteously indignant. 
Japanese shareholders still have a ways to go. 
Much more below the fold. 

There are three insights here - this one, an insight on Nuflare Technology, and an insight on Nishishiba Electric. 

Toshiba Tender for Toshiba Plant (1983) - Lighter Than It Should Be

Last night, apparently just before midnight, Jiji News had a very short <a href="https://www.jiji.com/jc/article?k=2019111200042&amp;g=eco" target="_blank" rel="noopener">article</a> (this one is one which replaced the original, which is no longer available) saying that Jiji "has learned" that <a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba Corp (6502 JP)</a> "is considering making some of its four listed subsidiaries into wholly-owned subsidiaries. The board has already begun discussions of the matter and it is possible that some conclusions will be reached as early as this week." Further.... (translated)<blockquote>Toshiba's listed subsidiaries are Toshiba Plant Systems (1983), Nishishiba Electric (6591), New Flare Technology (6256), and Toshiba Tec (6588). For listed subsidiaries, there is a risk of a conflict of interest between the parent company and minority shareholders, and there is a tendency to view it as a problem from the viewpoint of corporate governance. In consideration of the opinions of overseas investors, Toshiba seems to be considering ways to make it a wholly-owned subsidiary with up to three companies excluding Toshiba Tec in mind.</blockquote>Toshiba immediately fired off a response:<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/105/649/original/Screenshot%202019-11-12%20at%207.34.07%20AM.png?1573515459" class="editor-image img-responsive" data-smartkarma-image-id="105649"></figure>The standard "no decision has been made" translates roughly to "the board(s) has/have not officially decided that it will happen.""As early as this week" means "could be announced on the 13th when Toshiba releases earnings" because, coincidentally, that release will also entail a Toshiba board meeting.The idea of Toshiba taking over its listed subs simmering in the backs of investors' minds for years. It has been a pretty obvious outcome since Toshiba started its restructuring in 2017 following disclosure of further accounting problems and losses late in 2016. Some (myself included) have viewed it as simply a matter of time since the equity raise in late 2017 and Kurumatani-san's arrival in 2018. Eighteen months after his official arrival, in a meeting held between a selected group of investors and three independent directors held 1 October, it was revealed that what to do with the listed subs was front of mind for directors.All of this has been discussed in numerous insights, but most particularly and most recently in <a href="https://www.smartkarma.com/insights/toshiba-buyback-ending-the-next-catalyst-is-restructuring" target="_blank" data-smartkarma-citation="insights:33097" rel="noopener">Toshiba Buyback Ending: The Next Catalyst Is Restructuring</a> and <a href="https://www.smartkarma.com/insights/toshiba-restructuring-coming-toshiba-tec-is-still-the-right-horse" target="_blank" data-smartkarma-citation="insights:33916" rel="noopener">Toshiba Restructuring Coming - Toshiba Tec Is STILL the Right Horse.</a> Coincidentally, Toshiba's buyback <a href="http://www.toshiba.co.jp/about/ir/en/news/20191108_1.pdf" target="_blank" rel="noopener">ended last week</a> with ¥700 billion of shares (198 million of them) repurchased. The wording here of the Jiji comment is interesting. The timing of the article - Toshiba comments notwithstanding - suggests news is possible tomorrow (when Toshiba releases earnings).All three named subs are up. Toshiba Tec is down as of this writing. And this is still a good trade, but there may only be a day left.

Last night, apparently just before midnight, Jiji News had a very short article (this one is one which replaced the original, which is no longer available) saying that Jiji "has learned" that Toshiba Corp (6502 JP) "is considering making some of its four listed subsidiaries into wholly-owned subsidiaries. The board has already begun discussions of the matter and it is possible that some conclusions will be reached as early as this week." Further.... (translated)Toshiba's listed subsidiaries are Toshiba Plant Systems (1983), Nishishiba Electric (6591), New Flare Technology (6256), and Toshiba Tec (6588). For listed subsidiaries, there is a risk of a conflict of interest between the parent company and minority shareholders, and there is a tendency to view it as a problem from the viewpoint of corporate governance. In consideration of the opinions of overseas investors, Toshiba seems to be considering ways to make it a wholly-owned subsidiary with up to three companies excluding Toshiba Tec in mind.Toshiba immediately fired off a response:The standard "no decision has been made" translates roughly to "the board(s) has/have not officially decided that it will happen.""As early as this week" means "could be announced on the 13th when Toshiba releases earnings" because, coincidentally, that release will also entail a Toshiba board meeting.The idea of Toshiba taking over its listed subs simmering in the backs of investors' minds for years. It has been a pretty obvious outcome since Toshiba started its restructuring in 2017 following disclosure of further accounting problems and losses late in 2016. Some (myself included) have viewed it as simply a matter of time since the equity raise in late 2017 and Kurumatani-san's arrival in 2018. Eighteen months after his official arrival, in a meeting held between a selected group of investors and three independent directors held 1 October, it was revealed that what to do with the listed subs was front of mind for directors.All of this has been discussed in numerous insights, but most particularly and most recently in Toshiba Buyback Ending: The Next Catalyst Is Restructuring and Toshiba Restructuring Coming - Toshiba Tec Is STILL the Right Horse. Coincidentally, Toshiba's buyback ended last week with ¥700 billion of shares (198 million of them) repurchased. The wording here of the Jiji comment is interesting. The timing of the article - Toshiba comments notwithstanding - suggests news is possible tomorrow (when Toshiba releases earnings).All three named subs are up. Toshiba Tec is down as of this writing. And this is still a good trade, but there may only be a day left.

Toshiba Restructuring - It's Coming, Subs Are Up, and Wording Is Important

Japan

NISHISHIBA ELECTRIC CO., LTD. manufactures electrical equipment for ships. The Company also produces generation, co-generation, control, and power electronics-applied systems.  Nishishiba Electric is an affiliate of Toshiba Corp.

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Nishishiba Electric (6591 JP)

Toshiba Tender for Toshiba Plant (1983) - Lighter Than It Should Be

140 odd years ago in 1875, a prolific inventor and tinkerer named Tanaka Hisashige (who was at the time already an old man having been born in...

Travis Lundy

Toshiba Restructuring - It's Coming, Subs Are Up, and Wording Is Important

Last night, apparently just before midnight, Jiji News had a very short article (this one is one which replaced the original, which is no longer...

Travis Lundy

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)