Toshiba Corp. is sticking with its plans to sell its memory chip unit despite regulatory hurdles, said Nobuaki Kurumatani, who took over as the chief executive officer and chairman of the Japanese electronics maker this month.
It would take “substantial material” changes for the company to invoke its right to terminate its sale agreement with a group led by Bain Capital, Kurumatani, a former banker from one of Toshiba’s main creditors, said at a round table with journalists in Tokyo on Tuesday. The company doesn’t see its contractual right to scrap the deal as a “pure option,” he said.
Toshiba is in the process of selling its crown-jewel memory unit to a consortium led by Bain Capital to help cover billions of dollars of losses after its U.S. nuclear unit went bankrupt. The 2 trillion yen ($19 billion) sale, originally scheduled to close by March 31, has been held back by a delay in regulatory approval from China. Under the agreement’s terms, the new deadline for closing would then be May 1, and Toshiba would need to be cleared by April 13 in order to meet that timeline.
“Waiting for approval from Chinese authorities is all that’s left to do,” Kurumatani, 60, said. “Not getting the approval would qualify as a material change.”
Officials at China’s Ministry of Commerce could impose conditions that would impact the value of the business, such as requiring Toshiba to freeze prices or separate its solid-state disk and chip memory operations. If the Bain deal falls apart, Toshiba has at least three options: re-negotiate the terms, potentially at a higher price, take the memory chip business public or retain the division.
If he succeeds in selling the business, Kurumatani still 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 proceeds from the chip sale could be used for acquisitions, Kurumatani said, declining to give further details.
While the Tokyo-based company struck the deal with Bain when it was desperate to raise cash and avoid a de-listing, it no longer needs the money. Toshiba boosted its capital with the sale of 600 billion yen of new stock and is in the process of selling its nuclear assets for 410 billion yen. At the same time, the memory chip business has become even more valuable: It generated 205 billion yen in operating income in the fiscal first half, almost 90 percent of the company’s total.
The company is in a process of drafting a new restructuring plan that will shift Toshiba toward a business model centered on recurring revenues and new services for the internet of things, Kurumatani said. It will cover the five-year period starting April 2019 and will be released by Dec. 31, Kurumatani said. He gave no specific targets or details on new products or services.
Toshiba’s appointment of an outsider, only the second in the past 50 years, to top leadership is unusual for a conglomerate where executives typically spend decades working their way to the top. Before joining Toshiba, Kurumatani served as the representative director of CVC Capital Partners Ltd. in Japan and before that as vice president at Sumitomo Mitsui Banking Corp. A graduate of the University of Tokyo, Kurumatani has also been on Sharp Corp.’s board since June.
“I see inside this organization a strong desire to change,” Kurumatani said.