Toshiba says tender offer to take it private will launch on Tuesday

By Makiko Yamazaki and Anton Bridge

TOKYO (Reuters) -Japan’s Toshiba (OTC:) said on Monday a $14 billion tender offer to take the industrial conglomerate private will be launched on Tuesday – an effort that will, if successful, buy out activist investors and return it to domestic hands.

Toshiba’s board initially said private equity firm Japan Industrial Partners’ 4,620 yen-per-share ($32.44) bid was too low to recommend to shareholders. But it later concluded the price was “fair” as there were no prospects of a higher offer amid unfavourable economic conditions.

At least two-thirds of shareholders will need to tender their shares for the bid to succeed. Although the outcome is not clear, a successful bid would help draw a line under years of upheaval for Toshiba.

“Today marks a turning point for Toshiba. The company is coming out of a tunnel after eight years,” Akihiro Watanabe, chairperson of the board, told a news conference.

Toshiba’s shares have never risen above 4,600 yen since the planned buyout was officially announced in late March, an indication that investors are uncertain the bid will succeed.

The course of ongoing merger talks that memory chip maker Kioxia Holdings has with Western Digital (NASDAQ:) could raise uncertainties. Toshiba owns 40.6% of Kioxia and the stake is one of its most important assets.

It may be reasonable to assume that the terms of the Kioxia deal are not, at this stage, “sufficiently definitive” to allow Toshiba to make a comprehensive assessment, the company said in a statement.

If and when any Kioxia deal is announced, Toshiba will promptly assess the announcement, review the fairness of Japan Industrial Partners’ terms and provide its opinion, it said.

Watanabe said it’s effectively up to Japan Industrial Partners what to do if any changes in circumstances over Kioxia lower the prospects of shareholders tendering their shares.

Mio Kato, founder of LightStream Research who publishes on the Smartkarma platform, said it is not easy to say with certainty but leans towards the view that they will hit the two-thirds mark.

“For activist investors it’s a way to get capital out at reasonable if not spectacular returns. Not too many would be underwater,” he said.

Some activist shareholders, although not satisfied with the price, are tired of years of battles with the company and are eager to exit, sources familiar with the matter have said.

The tender offer, which values the electronics-to-power stations maker at 2 trillion yen, will run until Sept. 20. It was originally scheduled to start in late July, but was pushed back due to a regulatory delay.

The announcement coincided with Toshiba reporting its fourth straight quarter of operating profit. Operating income climbed to 11.4 billion yen ($80 million) compared with a loss of 4.8 billion yen in the same period a year earlier when it suffered from higher materials costs.

But it plunged to a net loss of 25.4 billion yen, battered by a large investment loss from its stake in Kioxia, which has seen demand slide.

Some 20 Japanese companies will take part in the tender offer. Major contributors include chipmaker Rohm with 300 billion yen and financial services firm Orix (NYSE:) with 200 billion yen. Many are longtime business partners who are eager to keep ties with Toshiba, the sources said.

Toshiba has been embroiled in a range of crises since 2015, including accounting debacles, the bankruptcy of its U.S. nuclear power unit and a major governance scandal in which a shareholder-commissioned probe found Toshiba colluded with Japan’s trade ministry to block overseas investors from gaining influence.

($1 = 142.2200 yen)

($1 = 142.4100 yen)