Former aircraft designer Shimada may find silver lining in Toshiba gloom (updated)
28/03/2022 16:12
(Adds rejection percentage in paragraph 2, clarifies in
paragraph 24 that the classification was part of rejected plan)
By Makiko Yamazaki
TOKYO, March 28 (Reuters) - The crisis at Toshiba Corp
6502.T may have a silver lining for new boss Taro Shimada,
allowing him to keep - at least for now - businesses pivotal to
his digital strategy that predecessors had planned to sell.
Investors last week voted down management's plan to spin off
Toshiba's devices unit with nearly 60% opposition, as well as a
rival shareholder proposal to solicit buyout offers. That left
the troubled 146-year-old conglomerate without a clear immediate
direction.
But it could give Shimada, a former aircraft designer and
Siemens AG SIEGn.DE executive, leeway for his plan to boost
subscription revenue by tying software to hardware.
It also allows him to hang onto equipment maker Toshiba Tec
Corp 6588.T , which was considered "non core" in the
now-rejected spin-off. Shimada has praised some businesses at
Toshiba Tec for marrying digital to hardware and sources say he
didn't want to sell it.
It's unclear if Shimada will be able to appease the hedge
funds that own around 30% of Toshiba and are impatient for a
private equity buyout. But as Thursday's vote shows, they don't
have enough support to completely call the shots. urn:newsml:reuters.com:*:nL2N2VV0DF
The outcome of the vote gives Shimada "carte blanche" to
show he can deliver, said veteran Japan analyst Jesper Koll of
Monex Group.
"For the first time in over a decade, you've got a CEO at
Toshiba who actually is a technologist, who understands
technology, who has hands-on experience," he said.
Big manufacturers are increasingly pushing into
higher-margin digital services. Shimada's former employer,
Siemens, wants to expand its customer base through digital
services that improve factories, buildings and train systems.
Shimada says he's the first Toshiba head to understand
digital. He was brought in as chief strategy officer for digital
in 2018 by then CEO Nobuaki Kurumatani, also a company outsider,
who wooed him over ramen noodles in Tokyo's Shimbashi district.
Kurumatani stepped down last year amid a governance scandal
and shareholder opposition. Toshiba later said the former boss
violated ethical standards. Shimada became the third CEO in
about a year when he took over this month from Satoshi
Tsunakawa, who remains board chairman. urn:newsml:reuters.com:*:nL4N2M7004 urn:newsml:reuters.com:*:nL1N2V40D7
CONSTANT TURMOIL
Toshiba has been in turmoil since a 2015 accounting scandal
and the later bankruptcy of U.S. nuclear unit Westinghouse.
Overseas investors injected $5.4 billion and saved it from
delisting, but that brought on hedge funds as shareholders.
Four years of dealing with foreign activist hedge funds -
and their varied demands for buybacks, board reshuffles and a
resumption of buyout talks - has left management distracted,
sources say.
The firm's stock market value has fallen to around $18
billion, half of an early 2000s peak.
Shimada says Toshiba can no longer sell just hardware and
needs to add digital services to improve both products and
margins.
He repeated that message "over and over" at internal
meetings when he first joined, he told Reuters in an interview
two years ago.
"I'm trying to show what digital transformation means," he
said in the interview.
Meanwhile, rival Hitachi Ltd 6501.T has been transforming
itself for a decade already, selling off low-growth businesses
and investing in its digital and services platform. Last year it
bought U.S. software firm GlobalLogic for $9.6 billion including
debt.
Toshiba's operating profit margin was 3.42% in the last
financial year, less than half of Hitachi's 9.38%, according to
Refinitiv.
SCEPTICAL
Investors remain sceptical of the company's ability to mount
a turnaround on its own.
While Toshiba is an "incredible company with incredible
technology inside" it has become "less than the sum of its
parts," said Brian Heywood, CEO of Taiyo Pacific Partners, which
doesn't own Toshiba shares.
The company "hasn't defined how its parts go together,"
Heywood said.
Shimada cites Toshiba Tec's "Smart Receipt" app, which works
with its point-of-sales systems, as one digitalisation example.
The app replaces paper receipts with electronic ones and
sends coupons to users' phones. Retailers get data for
advertising and promotions.
Shimada declined to comment this month when asked about the
classification, which was part of a plan since rejected, of
Toshiba Tec as "non core". He did say the business was
"extremely good." The company commands about half of the
domestic market for point-of-sales systems.
He also sees potential for a cybersecurity subscription
service based on quantum computing that protects users from
advanced cyberattacks.
Shimada hasn't publicly stated his stance on a potential
private equity buyout that hedge fund shareholders have been
calling for.
If that happens, he could still pursue his strategy -
provided existing management were allowed to stay on.
(Reporting by Makiko Yamazaki Additional reporting by Kevin
Buckland and Rocky Swift Editing by David Dolan and Shri
Navaratnam)
((david.dolan@tr.com; +81 3 6441 1526; Reuters Messaging:
david.dolan.thomsonreuters.com@reuters.net))