Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

HK Type 4 license through Ballingal Investment Advisors Ltd. ("BIA" or "BIAL")

BACKGROUND
I have 20+yrs experience in Asia doing alternative strategies (i.e. non-delta1 non long-only) in fixed income, equity derivatives, and activist/catalyst/event-driven and long-short equity strategies with most of that time spent managing money. 

4 years in fixed income macro, 8 years running internal hedge fund and 4yrs investment banking at Citi in Japan, 3 years running an Asia multi-strat portfolio at a hedge fund, 4+yrs as an independent special situations analyst.

Pan-Asia Catalysts/Events

Toshiba – We View Elliot’s Entry as Only Marginally Positive

Toshiba (6502 JP): Nanoimprint Litho Could Add Value to Kioxia, but Not Soon

Toshiba – First Impression of Spin Off Plan Is Negative

Toshiba's 2020 AGM Investigative Report Is Damning

Toshiba ToSTNeT-3 Buyback For All The Marbles, and 🐓s

How Much of Toshiba Is Owned By "Activists"? The Answer

Gravity Works As WeWork Doesn't; Now Plan B

Quiddity Advisors

Event-Driven

<a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba Corp (6502 JP)</a> has had a tough time of things for years, but they have been problems largely of the company's own manufacture. Ill-fated investments led to accounting mishaps, which led to management and internal control issues, which when cleaned up led to more significant tone at the top issues, and in its zeal to remain listed when it probably should have arranged for a take-private rescue in 2017-2018, it ended up being owned to a level of more than 50% by foreign activist investors. The company did a giant buyback, re-upped its dividend, and eventually returned to the TOPIX Index this past spring as it returned to the TSE First Section. But "new management" in the form of Nobuaki Kurumatani, who was looking for something to do after not making the top slot at SMBC, was somewhat autocratic, and eventually that triggered the problems which come when not-as-powerful-as-they'd-like autocrats have to rely on others (in this case, regulators) to do their dirty work for them. About 18 months ago when it looked like the activists might decide to oust Kurumatani from his Board seat (and by default, CEO-ship), the company went into Entrenchment Mode and undertook activity about which some activists eventually complained. An internal investigation by the Parents pretended to look under the bed and decided there were No Monsters There. Activists knew what they had experienced was not reflected in that No Monsters Review and demanded an EGM to call an independent review, which The Parents (management) opposed. They got it, then they got the review, and partway through, Kurumatani-san was running out of internal support, so the Board was apparently going to give him the axe. Magically, he found someone - his old shop - to say "hey, we'd like to buy out Toshiba, but only if Kurumatani-san stays" (discussed in <a href="https://www.smartkarma.com/insights/toshiba-the-ceo-gets-his-mbo-bidder-and-toshiba-will-get-interestinger" target="_blank" data-smartkarma-citation="insights:50058" rel="noopener">Toshiba - The CEO Gets His MBO Bidder and Toshiba Will Get Interestinger</a> and <a href="https://www.smartkarma.com/insights/gaming-out-a-cvc-bid-for-toshiba-the-right-noises-the-wrong-price-and-toast" target="_blank" data-smartkarma-citation="insights:50229" rel="noopener">Gaming Out a CVC Bid for Toshiba - The Right Noises, The Wrong Price, and Toast</a> (the first of which, coincidentally, followed on exactly a year after I wrote <a href="https://www.smartkarma.com/insights/an-mbo-for-toshiba-not-as-silly-as-it-sounds" target="_blank" data-smartkarma-citation="insights:38199" rel="noopener">An MBO for Toshiba? Not As Silly As It Sounds</a>)).  The board looked at that and decided that was a little too coincidental, and Kurumatani-san was gone (discussed in <a href="https://www.smartkarma.com/insights/toshiba-the-king-is-dead-long-live-the-king" target="_blank" data-smartkarma-citation="insights:50309" rel="noopener">Toshiba - The King Is Dead, Long Live the King</a>). The chatter of an MBO/LBO died down somewhat but did not die as earnings came out, a capital return became possible, then just two weeks before the AGM (one where Kurumatani-san was surely going to have problems if he had stayed) the Independent Report came out (<a href="https://www.smartkarma.com/insights/toshiba-s-2020-agm-investigative-report-is-damning" target="_blank" data-smartkarma-citation="insights:52868" rel="noopener">Toshiba's 2020 AGM Investigative Report Is Damning</a>). The report made it absolutely clear that indeed, there were lots of Monsters Under the Bed, and some of them were actually the Parents themselves, and there were tapes and emails, and a few conveniently destroyed mobile phones. In the interim, about 10% of the company had been bought by TOPIX trackers, and that shifted the mix of voting rights for the AGM, but when the damning report came out, some directors were livid because it turned out some directors and old management had effectively lied to them in presenting the first report. It was mayhem. The result? A bunch of directors were ousted and/or not re-elected. Toshiba now has fewer directors than it needed, the former CEO and one-time chairman is back as interim CEO and a search is on for a new CEO and new Chairman, more directors and a Strategic Review for the business is under way. There are noises of either an IPO (more likely) or a take-private of the <a href="https://www.smartkarma.com/entities/kioxia" target="_blank" data-smartkarma-citation="entities:29243:1" rel="noopener">Kioxia (6600 JP)</a> unit, but given global sensitivity to access to semiconductors and memory, I think an IPO much more likely. A couple of weeks ago, Toshiba made a <a href="https://www.global.toshiba/ww/news/corporate/2021/09/news-20210908-01.html" target="_blank" rel="noopener">press release</a> regarding the progress the Board was making in its strategic review, saying that any talk of a take-private situation would need to wait until that review was finished. This seemed to upset some investors but it makes utter sense from the standpoint of a Board lacking a full-time CEO, a complete complement of Board members, and a professional Chairman. It also needed some time to deflate expectations and upset on both sides after the Independent Report came out blaming both Toshiba and METI, saying illegality by one or both might have been committed, and METI came out very much defiant because of natsec concerns (which really only affect a small portion of the business). <h2>Today's News Is BIG</h2>The FT posted an <a href="https://www.ft.com/content/8c1c3cf0-951d-4032-9826-8c4576824db5?shareType=nongift" target="_blank" rel="noopener">article</a> this evening Tokyo time, saying that famed US-based activist firm Elliott Management Corp had bought a significant stake in Toshiba and held talks with management and the Board and advisers. "people close to Toshiba said that Elliott's stake did not exceed 5 per cent." Bloomberg touched base with Elliott who said that Elliott confirmed they were a "large shareholder." Generally, in Japan, that means a 5% stake, but we will see. If they are not over 5% in a Large Shareholder Report by next Thursday, then they aren't a 5% stakeholder today. But the FT article is super-interesting, and deserves to be read closely.And I have some more thoughts about that below the fold.

Toshiba Corp (6502 JP) has had a tough time of things for years, but they have been problems largely of the company's own manufacture. Ill-fated investments led to accounting mishaps, which led to management and internal control issues, which when cleaned up led to more significant tone at the top issues, and in its zeal to remain listed when it probably should have arranged for a take-private rescue in 2017-2018, it ended up being owned to a level of more than 50% by foreign activist investors. The company did a giant buyback, re-upped its dividend, and eventually returned to the TOPIX Index this past spring as it returned to the TSE First Section. But "new management" in the form of Nobuaki Kurumatani, who was looking for something to do after not making the top slot at SMBC, was somewhat autocratic, and eventually that triggered the problems which come when not-as-powerful-as-they'd-like autocrats have to rely on others (in this case, regulators) to do their dirty work for them. About 18 months ago when it looked like the activists might decide to oust Kurumatani from his Board seat (and by default, CEO-ship), the company went into Entrenchment Mode and undertook activity about which some activists eventually complained. An internal investigation by the Parents pretended to look under the bed and decided there were No Monsters There. Activists knew what they had experienced was not reflected in that No Monsters Review and demanded an EGM to call an independent review, which The Parents (management) opposed. They got it, then they got the review, and partway through, Kurumatani-san was running out of internal support, so the Board was apparently going to give him the axe. Magically, he found someone - his old shop - to say "hey, we'd like to buy out Toshiba, but only if Kurumatani-san stays" (discussed in Toshiba - The CEO Gets His MBO Bidder and Toshiba Will Get Interestinger and Gaming Out a CVC Bid for Toshiba - The Right Noises, The Wrong Price, and Toast (the first of which, coincidentally, followed on exactly a year after I wrote An MBO for Toshiba? Not As Silly As It Sounds)).  The board looked at that and decided that was a little too coincidental, and Kurumatani-san was gone (discussed in Toshiba - The King Is Dead, Long Live the King). The chatter of an MBO/LBO died down somewhat but did not die as earnings came out, a capital return became possible, then just two weeks before the AGM (one where Kurumatani-san was surely going to have problems if he had stayed) the Independent Report came out (Toshiba's 2020 AGM Investigative Report Is Damning). The report made it absolutely clear that indeed, there were lots of Monsters Under the Bed, and some of them were actually the Parents themselves, and there were tapes and emails, and a few conveniently destroyed mobile phones. In the interim, about 10% of the company had been bought by TOPIX trackers, and that shifted the mix of voting rights for the AGM, but when the damning report came out, some directors were livid because it turned out some directors and old management had effectively lied to them in presenting the first report. It was mayhem. The result? A bunch of directors were ousted and/or not re-elected. Toshiba now has fewer directors than it needed, the former CEO and one-time chairman is back as interim CEO and a search is on for a new CEO and new Chairman, more directors and a Strategic Review for the business is under way. There are noises of either an IPO (more likely) or a take-private of the Kioxia (6600 JP) unit, but given global sensitivity to access to semiconductors and memory, I think an IPO much more likely. A couple of weeks ago, Toshiba made a press release regarding the progress the Board was making in its strategic review, saying that any talk of a take-private situation would need to wait until that review was finished. This seemed to upset some investors but it makes utter sense from the standpoint of a Board lacking a full-time CEO, a complete complement of Board members, and a professional Chairman. It also needed some time to deflate expectations and upset on both sides after the Independent Report came out blaming both Toshiba and METI, saying illegality by one or both might have been committed, and METI came out very much defiant because of natsec concerns (which really only affect a small portion of the business). Today's News Is BIGThe FT posted an article this evening Tokyo time, saying that famed US-based activist firm Elliott Management Corp had bought a significant stake in Toshiba and held talks with management and the Board and advisers. "people close to Toshiba said that Elliott's stake did not exceed 5 per cent." Bloomberg touched base with Elliott who said that Elliott confirmed they were a "large shareholder." Generally, in Japan, that means a 5% stake, but we will see. If they are not over 5% in a Large Shareholder Report by next Thursday, then they aren't a 5% stakeholder today. But the FT article is super-interesting, and deserves to be read closely.And I have some more thoughts about that below the fold.  

Toshiba Corp

Toshiba - Elliott Jumps Into The Fray