CVC considers $ 20 billion for Toshiba

According to two people familiar with the talks, CVC Capital Partners is weighing a $ 20 billion bid for a majority stake in Toshiba, which could privatize the Japanese industry group and remove activist investors from its shareholder register.

The deal, which will be one of the 20 largest leveraged buyouts in history, will take another turn in a corporate saga that sent Toshiba from a 2015 profit scandal and the brink of bankruptcy two years later to a humiliating defeat in ‘ a showdown with its largest shareholders last month.

CVC is expected to partner with other investment funds to fund the deal, which was first reported by Nikkei Asia. The buyout group in Luxembourg declined to comment.

Toshiba said in a statement on Wednesday that it would carefully study an initial proposal it had received from CVC a day earlier.

The removal of the 145-year-old Toshiba from the Tokyo Stock Exchange in a foreign leadership would be an extremely symbolic step, said advisers directly involved with the conglomerate, after years of increasing activism and acquisitions by foreign funds. US private equity firms such as Bain and KKR regard Japan as one of the most targeted markets in the world.

But Toshiba was particularly vulnerable. The company’s protracted financial crisis, stemming from the collapse of the US nuclear power company in 2017, was temporarily resolved when Goldman Sachs involved a $ 5.3 billion emergency equity issue.

Although the deal was quickly settled, it left Toshiba’s shareholder register heavily populated with foreign activist funds – groups that could see the chance of a profitable exit if the CVC deal is settled at a large premium.

Activist investors in Toshiba include the mysterious fund Effissimo in Singapore, which is the group’s largest shareholder, and led the pressure on Nobuaki Kurumatani, the CEO appointed in 2018 to turn the company around.

In the three years since his appointment, Kurumatani has repeatedly clashed with shareholders. At an extraordinary general meeting last month, the management of Toshiba was embarrassed after shareholders voted in favor of Effissimo’s proposal for an investigation into the company’s behavior during the annual general meeting.

A bid by a non-Japanese private equity fund will require approval from the Japanese government and a takeover of Toshiba will be particularly sensitive as it operates the country’s nuclear power plants.

However, CVC is no stranger to Toshiba. Kurumatani, a former banker, was president of the Japanese arm of the European fund before taking over as Toshiba’s CEO. 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 biggest leverage purchases since the 2008 financial crisis, on the same scale as the acquisition of Thyssenkrupp’s € 17.2 billion lift last year by Advent International and Cinven, according to Refinitiv.

Last year, CVC raised a € 21 billion fund for transactions in Europe and America, and a separate $ 4.3 billion Asian fund, according to its website.

However, the acquisition of Toshiba means that the normal trading style in the region is deviated from, in which it usually buys groups valued between $ 250 million and $ 1.5 billion. In February, he bought a majority stake in Shiseido’s personal care business.

CVC’s recent deals have included a £ 365 million stake in the Six Nations rugby tournament and interest in two UK companies whose software is behind the NHS coronavirus vaccination.

Several private equity firms have previously rejected a bid on Toshiba, calculating that the sum of its parts could be greater than the current valuation, an industry adviser would be told. However, the adviser added that the scope and complexity of the transaction had previously made it difficult to complete.