CVC Capital Partners has made a $20bn offer for Toshiba, joining KKR and other private equity funds in a potential bidding battle that could generate Japan’s biggest buyout deal in history, according to people with knowledge of the talks.
The deal under discussion would take Toshiba private and would mark yet another twist in a corporate saga that has led the company from a profit-padding scandal in 2015 and the edge of bankruptcy two years later to a humiliating defeat in a showdown with its largest shareholders last month.
News of the CVC offer, and the expectation of a hefty premium, caused trading in Toshiba’s shares to freeze on Wednesday morning in Tokyo because of a glut of buy orders. Before CVC’s overture became known, Toshiba’s shares were trading at about 18 per cent below their level in December 2016, just before the company’s financial crisis began.
According to bankers and people close to Toshiba, CVC is expected to form a consortium with corporate and financial partners to finance the buyout, which would spare Toshiba’s management the pressures of its activist shareholders.
The Luxembourg-based buyout group declined to comment on the proposal, which was first reported by Nikkei Asia.
Toshiba said it would carefully study an initial proposal it received from CVC at a board meeting later on Wednesday. The group claimed the bid was unsolicited, but other private equity groups have held non-binding talks about a buyout in recent months, according to people close to the funds.
The removal of the 145-year-old Toshiba from the Tokyo Stock Exchange in a foreign-led deal would be a hugely symbolic move, said advisers directly involved with the conglomerate, after years of increased activism and acquisitions by overseas funds. US private equity firms such as Bain and KKR view Japan as one of the most target-rich markets in the world.
But Toshiba has been especially vulnerable. The company’s protracted financial crisis, which stemmed from the collapse of its US nuclear business in 2017, was temporarily solved when the company engaged Goldman Sachs to run an emergency issuance of $5.3bn of equity.
Although the deal was completed quickly, it left Toshiba’s shareholder register heavily populated with foreign activist funds — groups that may see the opportunity for a lucrative exit if the CVC deal is completed at a large premium.
Activist investors in Toshiba include the secretive Singapore-based fund Effissimo, which is the group’s largest shareholder and has led the pressure on Nobuaki Kurumatani, the chief executive who was hired in 2018 to turn the company round.
In the three years since his appointment, Kurumatani has clashed repeatedly with shareholders.
A bid by a non-Japanese private equity fund would also require approval from the Japanese government. A takeover of Toshiba would be particularly sensitive because it operates the country’s nuclear plants.
CVC, however, is not a stranger to Toshiba. Kurumatani, a former banker, was president of the European fund’s Japanese arm before taking over as Toshiba’s chief executive. Yoshiaki Fujimori, a senior executive adviser to CVC in Japan, is also a member of the Japanese group’s board.
The deal would be one of the largest leveraged buyouts since the 2008 financial crisis, on the same scale as the €17.2bn acquisition of Thyssenkrupp’s lifts business by Advent International and Cinven last year, according to Refinitiv.
CVC raised a €21bn fund last year for deals in Europe and the Americas, and a separate $4.3bn Asian fund, according to its website.
But buying Toshiba would mark a departure from the company’s usual style of dealmaking in the region, in which it typically buys groups that are valued between $250m and $1.5bn, its site said. In February, it bought a majority stake in Shiseido’s personal care business.
CVC’s recent deals have included a £365m stake in the Six Nations rugby tournament and stakes in two UK-based companies whose software is behind the NHS coronavirus vaccine rollout.