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Toshiba investors reject revised spin-off plans

Shareholders question whether management can be held accountable for such a "irreversible and momentous" plan

Toshiba's plans to diverge itself into two separate companies have been opposed by some of its larger investor groups.

Effissimo Capital Management has stated that Toshiba's current leadership structure is in no position to make such an "irreversible and momentous" plan, particularly as it can't be held accountable for its proper execution.

The Japanese conglomerate originally planned to create three entities, to "add more value to its shareholders", the company said in November 2021. However, those plans were rejected by shareholders, forcing the company to create a new strategy that would see it split into two entities. But this also appears to be an unfavourable option.

Toshiba's original spin-off plans were the result of an investor-commissioned review into its management, which had been plagued by a number of scandals. In 2015 the firm was found guilty of inflating its profits by $1.3 billion for almost seven years. It was also found to have entered an agreement with Japan's Ministry of Economy, Trade and Industry to pressure activist shareholders at Toshiba AGM meetings.

For Effissimo, the proposals would be an "irreversible" turning point for both Toshiba's corporate value and its future as a company, and any error in judgement with the split would "yield irrevocable consequences". As such, the investor said it is unable to ignore the potential damage that a separation may include and is therefore voting against the revised plans.

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This is also the case for its second-largest shareholder, 3D Investment Partners, which published a presentation to oppose the plans. According to its document, the initial review that led to the revised strategy lacked "transparency" and Toshiba will ultimately "disenfranchise its shareholder base".

3D Investment has also suggested that Toshiba's resistance to a buyout could lead to another potential scandal. In April 2021, Toshiba was approached by CVC Capital Partners over a $14 billion takeover, but 3D Investment's presentation suggests the company's top executives took a "leading role in blocking the proposals", going as far as to suggest they actively prevented it from being discussed.

A formal shareholder vote is set to take place on 24 March at Toshiba's general meeting.

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