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Toshiba & CVC: What we know so far

Toshiba, currently courted by numerous PE groups, confirmed it has ‘received an initial proposal’ from CVC this week and will ‘ask for further clarification and give it careful consideration’, in what looks like a process which could become Japan’s largest ever buyout deal.

Toshiba issued a statement on 9 April saying that the initial proposal is conditional on clearance of anti-trust regulation, as well as the Foreign Exchange and Foreign Trade Act of Japan, and necessary financing.

The corporation also said that the proposal involved seeking finance assistance from co-investors and financial institutions in pursuing the proposed transaction. “We expect that such financing process would require a substantial amount of time and involve complexity for consideration,” it concluded.  

CVC’s interest in the company sent the Tokyo-based Japanese multinational conglomerate’s shares surging on the back of the news, and trading of Toshiba shares was stopped on Tokyo’s stock exchange when it opened after the company confirmed the offer.

The Financial Times has reported that CVC would consider teaming up with other investors to participate in the buyout. The British private equity firm is expected to make a formal bid, thought to be worth between GBP15.1 billion and GBP20 billion, through a consortium that would take the Japanese company private, according to reports.

There is already a well-established link that connects the history of the two groups; Nobuaki Kurumatani, Toshiba’s president and CEO, was head of CVC’s Japan division in 2017 and 2018, prior to entering his current role as chief exec at the Tokyo-based company. Kurumatani disclosed that Toshiba has received the proposition and that it would be discussed in one of their board meetings, presumably on Wednesday.

Following CVC Capital Partners’s offer of up to USD20 billion – according to some reports – for a stake in Toshiba, the conglomerate could find itself at the centre of Japan’s biggest private equity buyout to date. And the European-based fund, a world leader in private equity and credit with USD117.8 billion of assets under management, has thereby joined KKR and several other private equity firms in making a bid for the currently troubled Toshiba Group.

CVC declined to comment on the matter. CVC Group has been in touch with local institutional investors however, according to sources quoted by Bloomberg, which could help the potential buyer in gaining regulatory approval for the deal from Japanese authorities, as well as certain banks in order to secure financing of the deal.

Because while Toshiba Group issued a statement on Wednesday saying that it has indeed received an offer from CVC, any such offer would need to be approved by the Japanese government under a law regulating foreign investment in Japanese companies dealing with tech products, for national security reasons.

The bidding flurry that has erupted over one of Japan’s most high-profile companies has in turn spurred a response from the Japanese government, with Hiroshi Kajiyama, Minister of Economy, Trade and Industry since 2019, saying that he is keeping “a close eye” on the bidding process as Toshiba is involved in several “ongoing infrastructure projects”.

CVC closed its eighth fund at a hard cap of EUR21.25 billion in July 2020, to take advantage of distressed assets affected by the pandemic. The PE group also agreed to acquire a stake in the PRO14 rugby league in May last year, as well as taking part in negotiations for a minority stake in Italy’s Serie A.
The Toshiba brand, which dates all the way back to 1875, covers areas as diverse as power, industrial and social infrastructure systems, elevators and escalators, electronic components, semiconductors, hard disk drives, printers, batteries and lighting.

The company has been hit by scandals in recent years, but following a well-needed restructuring, the company’s profits recouped as a result and it was allowed to return to the first section of the Tokyo Stock Exchange earlier this year.

Financial analysts in the UK have now raised concerns that private equity groups might initiate several similar takeover processes closer to home of assets that have been negatively affected by the Covid-19 crisis.

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