Toshiba Split Proposal Dealt Blow as Proxy Firm Rejects Plan

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

Institutional Shareholder Services Inc. urged investors in the Japanese conglomerate to reject the proposal, it said in a report dated March 9. Activist investor Effissimo Capital Management Pte, which holds a roughly 10% stake in Toshiba, also spoke out against the plan on Thursday, saying that such a split would be irreversible and could be detrimental in the longer term.

“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 its report.

The proxy adviser also went against a proposal from one of Toshiba’s largest investors, 3D Investment Partners Pte, 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 March 24.

Toshiba will continue to make every effort to explain its proposal to shareholders to gain their support, a spokeswoman said. A representative for 3D wasn’t immediately available to comment.

Toshiba shares rose as much as 6.2% in Thursday trading in Tokyo.

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% stake in air-conditioning business Toshiba Carrier Corp. to its U.S. joint venture partner Carrier Global Corp. for about 100 billion yen, the company said at the time.

Chief Executive Officer 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 breakup plan, with Toshiba positioning the change of leadership as a way to prepare for the split.

Before he resigned, 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, defense and cybersecurity.

Toshiba, once among Japan’s most revered companies, 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.