November 29, 2021

3D Investment Partners Sends Open Letter to Strategic Review Committee and Board of Directors of the Toshiba Corporation

TOKYO, Nov. 24, 2021 /PRNewswire/ — 3D Investment Partners Pte. Ltd. (together with the funds it manages, “3D”), one of…

TOKYO, Nov. 24, 2021 /PRNewswire/ — 3D Investment Partners Pte. Ltd. (together with the funds it manages, “3D”), one of Toshiba’s largest shareholders, today sent a letter to the Strategic Review Committee (the “SRC”) and the Board of Directors (the “Board”) of Toshiba Corporation (“Toshiba” or the “Company”) (6502.T).

We are convinced that a better process would have yielded better alternatives for Toshiba.

In the letter, 3D indicates that it believes the SRC’s review of strategic alternatives was incomplete and inadequate and calls upon the SRC and the Board to perform a fully informed, objective review of all of Toshiba’s strategic alternatives. 3D noted that it does not believe that the SRC’s plan to split Toshiba into three different companies is optimal or likely to create value for Toshiba’s shareholders.

The full text of the letter to the SRC and the Board is copied below:

24 November 2021

The Strategic Review Committee of the Board of Directors and Board of Directors

Toshiba Corporation

1-1, Shibaura 1-chome, Minato-ku, Tokyo, 105-8001, Japan

     Re:      The Inadequate SRC Process

Ladies and Gentlemen:

3D Investment Partners Pte., Ltd. provides discretionary investment management services to funds that, in aggregate, continue to be one of the largest owners of Toshiba Corporation (“Toshiba” or the “Company”).

We believe that significant change is required at Toshiba. For too long, Toshiba has suffered from failures of execution and misallocation of capital. Its corporate culture, misalignment with shareholders, and corporate governance have destroyed value and left Toshiba weak. These issues have been compounded, in our view, by a series of actions and statements from the legacy Board and executives that lacked transparency and damaged the credibility of the Company with its stakeholders.

That said, we have long believed that the proper changes at Toshiba could return Toshiba to its rightful place among Japan’s most admired and well-performing corporations and restore investor confidence.

The Strategic Review Committee’s Role

We were hopeful that the Strategic Review Committee (“SRC”) could serve the critical role of objectively evaluating Toshiba and its culture, determining the Company’s core strengths and core businesses, and analyzing how those businesses and the non-core businesses should best be operated, governed, capitalized and owned to create value for Toshiba’s stakeholders. We have urged the SRC to be searching in its inquiries and transparent in its disclosures with shareholders.

We believe the SRC has failed at this task, and it appears many other shareholders agree.

Rather than building credibility through transparency and focusing on a solution for Toshiba’s longstanding issues that shareholders could support, the SRC’s report and conclusions have been met with doubt and concern. Since news stories of the SRC’s conclusions were publicized on 8 November, Toshiba’s stock is down more than 8% (even as the broader Japanese stock market has risen). Approximately 190 billion yen of shareholder value has been lost since the SRC publicly described its premature conclusion through an inadequate process.

The SRC Failed to Conduct a Fulsome, Independent Review

The SRC did not objectively consider a full range of alternatives.

By its own admission, the SRC did not provide detailed information to, or conduct management meetings with, private equity firms, nor did it ever ask for or receive proposals for a sale of the Company or a partial disposition of businesses. It appears from the SRC report that no strategic partners or acquirors were contacted either.

The one set of detailed meetings – which concerned a minority investment and strategic partnership with a global private equity firm with experience in Toshiba’s industries – appear to have been prematurely terminated on the specious grounds that Toshiba’s ordinary shareholders would not approve such a transaction and it is not completely consistent with the interests of Toshiba’s ordinary shareholders. We should note that in concept, the opportunity for Toshiba and its public shareholders to partner with an aligned, global private equity firm to grow and improve Toshiba could be attractive to Toshiba’s shareholders (depending of course on the terms), especially given the decades-long track record of abysmal value creation of standalone Toshiba.

Worryingly, management appears to have had a central role in considering the potential advantages or disadvantages of these partially reviewed options. And it is clear from the SRC’s report itself that management is neither enthusiastic about the business – and hence its lackluster projection model that is almost bereft of growth – nor interested in reporting to an owner that can hold management accountable.

Instead of acting truly independent and objective, overly reliant upon an intransigent management team’s uninspired projection model and dubious claims of regulatory, employee morale and customer concerns about a different ownership structure, the SRC appears to have compromised its review and relented. So rather than examining the full range of possibilities and reporting on those possibilities to shareholders, the SRC has instead decided that the status quo, with some minor shuffling of businesses into different corporate entities, is the prescription for success, despite years of evidence to the contrary.

In fact, we believe it is extremely unlikely that splitting Toshiba into three pieces, as the SRC has recommended, will resolve any of Toshiba’s current execution, cultural, capital allocation or governance problems, and is instead very likely to create three underperforming companies in the image of today’s Toshiba. The demerger would create more prestigious senior jobs for insiders to fill, without any additional oversight or accountability. We fear this solution will merely perpetuate an underperforming culture. And, while shareholders await the split, Toshiba will flail as an oversized, unfocused conglomerate for two more years.

A Better Path Forward

To create value, Toshiba should focus its capital and best people on its market leading franchises, while allowing its non-core or less successful businesses to be owned by others who, through strategic relationships or financial flexibility, can create value from those businesses. Retaining all or most of Toshiba’s businesses, and merely shuffling them into separate legal entities, does none of the hard work of sifting the core businesses from the non-core businesses and ensuring the core businesses are operated well, capitalized properly or governed effectively.

We thus believe the SRC’s process and conclusions were lacking.

Absent very compelling additional disclosures from the SRC, we do not intend to support the plan to split the Company into three separate entities. We are convinced that a better process would have yielded better alternatives for Toshiba.

We therefore encourage you to open a formal process, develop a compelling plan for each of the businesses, provide detailed diligence materials and management meetings to interested financial and strategic parties, encourage and enable stretch proposals from those parties and evaluate the best path forward for Toshiba in light of the competitive proposals that we are certain will be submitted. It is also incumbent on the SRC to provide transparency into those proposals so that shareholders have confidence in the actions of the Board and trust can be restored.  

Sincerely,

3D Investment Partners Pte. Ltd

About 3D Investment Partners Pte.

3D Investment Partners Pte. Ltd is an independent Singapore-based Japan focused value investing fund manager founded in 2015. 3D Investment Partners Pte. Ltd. focuses on partnering with managements who share its investment philosophy of medium- to long-term value creation through compound capital growth and a common objective of achieving long-term returns.

Disclaimer

This press release is provided for informational purposes only and does not constitute an offer to purchase or sell any security or investment product, nor does it constitute professional or investment advice. This press release should not be relied on by any person for any purpose and is not, and should not be construed as investment, financial, legal, tax or other advice.

3D Investment Partners Pte. Ltd. and its affiliates (“3DIP”) currently beneficially owns and/or has an economic interest in and may in the future beneficially own and/or have an economic interest in, Toshiba group securities. 3DIP intends to review its investments in the Toshiba group on a continuing basis and, depending upon various factors including, without limitation, the Toshiba group’s financial position and strategic direction, the outcome of any discussions with Toshiba, overall market conditions, other investment opportunities available to 3DIP, and the availability of Toshiba group securities at prices that would make the purchase or sale of Toshiba group securities desirable, 3DIP may, from time to time (in the open market or in private transactions), buy, sell, cover, hedge, or otherwise change the form or substance of any of its investments (including the investment in Toshiba securities) to any degree in any manner permitted by any applicable law, and expressly disclaims any obligation to notify others of any such changes.

No representation or warranty, either expressed or implied, is provided in relation to the accuracy, completeness, or reliability of the information contained herein, nor is it intended to be a complete statement or summary of the securities, markets, or developments referred to herein. 3DIP expressly disclaims any responsibility or liability for any loss howsoever arising from any use of, or reliance on, this press release or its contents as a whole or in part by any person, or otherwise howsoever arising in connection with this press release.

3DIP disclaims any intention or agreement to be treated as a joint holder (kyodo hoyu sha) under the Financial Instruments and Exchange Act of Japan, a closely related party (missetsu kankei sha) under the Foreign Exchange and Foreign Trade Act with other shareholders, or receiving any power to represent other shareholders in relation to the exercise of their voting rights by virtue of its act to express its views, estimates, and opinions or otherwise to engage in dialogue with other shareholders through this press release.

3 DIP does not have the intention to make a proposal, directly or through other shareholders of Toshiba, to transfer or abolish the business or asset of Toshiba and/or Toshiba group companies at the general shareholders meeting of Toshiba. 3DIP does not have the intention and purpose to engage in any conduct which constricts the continuing and stable implementation of business of Toshiba and/or Toshiba group companies. 3DIP does not have the intention to attend or have any person appointed by 3DIP attend the meeting of the board of directors or committee that has the power to make material decision of Toshiba either.

3DIP does not have the intention to require an answer or certain conduct to members of the board of directors or committee that has the power to make material decision of Toshiba concerning the business of Toshiba and/or Toshiba group companies.

This press release may include content or quotes from news coverage or other third party sources (“Third Party Materials”). Permission to quote from Third Party Materials in this press release may neither have been sought nor obtained. The content of the Third Party Materials has not been independently verified by 3DIP and does not necessarily represent the views of 3DIP. The authors and/or publishers of the Third Party Materials are independent of, and may have different views to 3DIP. The quoting Third Party Materials on this press release does not imply that 3DIP endorses or concurs with any part of the content of the Third Party Materials or that any of the authors or publishers of the Third Party Materials endorses or concurs with any views which have been expressed by 3DIP on the relevant subject matter. The Third Party Materials may not be representative of all relevant news coverage or views expressed by other third parties on the stated issues.

In respect of information that has been prepared by 3DIP (and not otherwise attributed to any other party) and which appear in the English language version of this press release, in the event of any inconsistency between the English language version and the Japanese language version of this press release, the meaning of the English language version shall prevail unless otherwise expressly indicated.

Contacts

3D Investment Partners Pte. Ltd.

3DIPartners@3dipartners.com

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SOURCE 3D Investment Partners Pte. Ltd.

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