Wednesday 15 August 2018

Toshiba uses chip sale to fund first-ever shares buyback

Nobuaki Kurumatani, CEO of Toshiba. Photo: Bloomberg
Nobuaki Kurumatani, CEO of Toshiba. Photo: Bloomberg

Pavel Alpeyev and Yuki Furukawa

Toshiba is buying back 700 billion yen (€5.3bn) of its own shares in its first-ever stock repurchase after completing the two trillion yen (€15.3bn) sale of its memory chip business almost two weeks ago.

Shares of the electronics maker rose 6.7pc, the biggest gain since August, after the Tokyo-based company announced the buyback in a statement yesterday.

Toshiba is aiming for a "healthy" capital structure for its shareholders, it said.

Although Toshiba had agreed to sell the chip business at a time when it was desperate to raise cash and avoid a delisting, it no longer needs the money.

The company also boosted its capital with the sale of 600 billion yen (€4.65bn) of new stock and is raising 410 billion yen from a sale of nuclear assets, leaving it with a hefty cash pile. That prompted investor Argyle Street Management to urge Toshiba to buy back its shares.

"A surprise," said Masahiko Ishino, an analyst at Tokai Tokyo Research Centre. "The move to maximise shareholder value shows that management is thinking ahead."

Toshiba said it will complete the repurchase as soon as possible, without giving a specific timeframe.

Last month, Hong Kong-based activist investor Argyle sent a letter to CEO Nobuaki Kurumatani, saying that Toshiba's board should set a 1.1 trillion yen (€8.4bn) buyback programme before its annual shareholders' meeting on June 27.

The amount represents the net cash left after the chip unit sale, Argyle's Kin Chan wrote in the May 28 letter obtained by Bloomberg.

"We are 70pc happy," Mr Chan said after the buyback announcement. "It is an indication that they are listening to shareholders instead of doing mergers and acquisitions."

The manufacturer should implement a "transparent policy of distributing 100pc of free cash flow after appropriate capital expenditure," it said. Argyle declined to comment on the size of its holding.

Toshiba should refrain from spending its excess cash on mergers, Argyle said, describing the firm's track record as "value destructive" and having "brought the company to the brink of collapse."

Mr Kurumatani, who took over as the CEO in April, had previously said the proceeds from the chip sale could be used for acquisitions. The former banker from one of Toshiba's main creditors has the unenviable job of rebooting growth at the 143- year-old conglomerate battered by accounting scandals without the key engines of semiconductors and nuclear power.

The company is in a process of drafting a new restructuring plan that will shift Toshiba toward a business model centred on recurring revenues and new services for the internet of things, Mr Kurumatani said in April. It will cover the five-year period starting April 2019 and will be released by the end of this year.

Bain Capital, which lead the group that bought Toshiba's semiconductor unit, is aiming for an IPO in three years.

(Bloomberg)

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