Toshiba shares rise after top shareholder backs Bain buyout plan

Toshiba shares jumped more than 5% on Friday after Bain Capital won support from the company’s largest shareholder and opened talks with other investors on a potential deal to take the 140-year-old Japanese conglomerate private.

The US private equity firm should be able to submit a formal proposal to Toshiba “relatively soon”, according to people familiar with the matter, and has received indications of support for a potential deal within the upper echelons of the company. business.

A deal to take over Toshiba, which would be Japan’s biggest ever and a pivotal moment for the advancement of private equity in the world’s third-largest economy, has been the subject of speculation among its shareholders for 12 months. Some have argued that the company deserves a valuation well over $20 billion.

The decisive backing of Bain by Effissimo Capital Management, Toshiba’s largest shareholder, is putting significant pressure on the Japanese company to actively court takeover bids from private equity-led consortia and find an exit from a relationship. increasingly tense with shareholders.

In a regulatory filing on Thursday, Singapore-based fund Effissimo said it had agreed to sell its 9.9% stake in Toshiba if Bain launched an offer that met regulatory approval.

That Bain’s offer would not blind Toshiba executives and board members, people familiar with the company said, contrasted with a surprise preliminary approach made last April by the capital firm. -CVC’s rival investment that ultimately led to the resignation of then-CEO Nobuaki Kurumatani.

Bain spoke to other major shareholders about their likely response to a bid and opened talks with Japanese investors who would be part of a buyout consortium and help ease regulatory concerns over Toshiba’s fall into wholly owned ownership. foreign.

Beyond its status as a symbol of Japanese industrial might – after Friday’s rise, Toshiba has a market capitalization of $17.3 billion – Toshiba’s business spans across sensitive areas including energy nuclear, defense and semiconductors.

Bankers and lawyers said a full takeover of Toshiba by an all-foreign consortium would likely be impossible, given restrictions under Japan’s recently revised foreign exchange and foreign trade law (Fefta).

Bain’s deal with Effissimo prevents the latter from selling its stake to other potential bidders, raising significant hurdles for KKR, Blackstone and other private equity firms that have explored takeover deals with Toshiba. .

Last week, in a rare showdown and a historic moment for Japanese companies, Toshiba investors rejected the company’s proposal to split in two, but also rejected a major shareholder’s plan calling the Japanese group to reopen talks on a possible takeover.

Despite the outcome, senior Toshiba officials had treated the vote as a clear warning that without opening up to talks with potential suitors, the company risked permanent stalemate and long-term damage to its competitiveness, said people familiar with the matter.

In a statement, Bain said nothing has been decided yet regarding an offer for Toshiba, adding that “we recognize that there are many challenges to be resolved.” The group will hold talks with Toshiba management, the Japanese government, banks and other stakeholders, he added.

Toshiba said it was not involved in the deal between Effissimo and Bain, but added that it would “do its best to build trust with shareholders and reconsider its strategic options to continuously improve the value of the company”.

Effissimo said it had made the required disclosures and that “while we intend to share our thoughts on this subject at the appropriate time, we ask that you please be patient at this time.”

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