Toshiba US$5 billion stock issue results in huge dilution but delisting risk removed
TOKYO: Toshiba Corp’s (Toshiba) plan to raise some US$5.4 billion (4.1 billion pounds) through a sale of new shares will help it avoid a delisting, but will also see more than 30 overseas investors, including activist funds, own 35 per cent of the embattled conglomerate.
The move, decided at a board meeting on Sunday, will allow Toshiba to pay off billions of dollars in liabilities at its bankrupt US nuclear power business, Westinghouse. That in turn gives it the funds to return to positive net worth by the end of the financial year in March, as an US$18 billion sale of its prized memory chip unit is unlikely to close before then.
The issue of 2.28 billion new shares at 262.8 yen per share (1.8 pounds), a 10 per cent discount to Friday’s close, will result in a massive 54 per cent dilution in earnings per share.
Toshiba’s shares were, however, down just five per cent in early afternoon trade as the delisting risk was removed and as the capital raising had been expected. The stock was last trading at 277 yen – a level above the sale price.
“Toshiba’s fund raising news eliminates the risk of Toshiba being delisted so that part is positive,” said Takatoshi Itoshima, chief portfolio manager at Commons Asset Management.
“What’s also positive is that the fund raising will improve the company’s financial health. There is an argument that the company will be left with nothing (without the chip business), but it’s good that the company’s capital will recover.”
Third Point LLC, Oasis Management Company and Cerberus Capital Management were among the more than 30 investors which invested through some 60 funds.
Singapore-based fund Effissimo Capital Management, established by former colleagues of Japan’s best-known activist investor, Yoshiaki Murakami, will become the largest shareholder in Toshiba with an 11.34 per cent stake.
Payments for the new investment are due to be completed on December 5.
Toshiba also confirmed that it is looking at selling Westinghouse assets.
Sources told Reuters in September that Westinghouse is working with investment bank PJT Partners Inc on a sale process.
Private equity firms Blackstone Group LP and Apollo Global Management LLC have teamed up to bid for the business while Cerberus Capital Management LP was in talks with US nuclear power plant component provider BWX Technologies Inc about submitting a joint bid, the sources said at the time.
Toshiba had initially planned to use funds from the sale of its chip unit to cover its Westinghouse liabilities, but a highly competitive and contentious auction process led to delays in deciding on the buyer and has meant that Toshiba may not obtain the necessary anti-trust clearance by the end of March. — Reuters