Focus: In buying Toshiba, a little-known fund takes on Japan Inc's toughest job

Toshiba

19/12/2023 07:29

By Anton Bridge and Makiko Yamazaki
       TOKYO, Dec 19 (Reuters) - A little-known private equity
firm is set to take on the toughest job in corporate Japan:
turning around Toshiba.
    Japan Industrial Partners (JIP) is spearheading a $14
billion takeover that will see the troubled conglomerate
delisted on Wednesday after 74 years on the Tokyo exchange.
    While not a global player, JIP has quietly built up a track
record by carving out businesses from big manufacturers, such as
Sony's laptop arm and Olympus' camera unit. Led by a former
banker with a Wharton MBA, it has a reputation for being
hands-on with its acquisitions, and for thrift - its executives
fly economy.
    In Toshiba, JIP takes on a sprawling company far bigger and
more complex than any it acquired before. The stakes are also
higher: Toshiba employs some 106,000 people in businesses
including batteries, chips, nuclear power and defence, making it
critical to national security.
    Whether JIP can pull off a turnaround remains an open
question given the damage at Toshiba after a decade of scandal,
the bankruptcy of U.S. unit Westinghouse, management upheaval
and backlash from activist shareholders.
    JIP, which declined to comment for this article, has said
little of its plans which will see it retain current Toshiba CEO
Taro Shimada. It is likely to re-list Toshiba shares within a
few years, Nikkei Asia on Tuesday cited the conglomerate's
outgoing chairman as saying.
    Some industry insiders see a split-up and sweeping sales -
rather than an initial public offering (IPO) - as the most
feasible way forward.
    "An IPO would be difficult without a compelling growth story
that involves global expansion," said Damian Thong, head of
Japan research at Macquarie Capital Securities.
    In some past deals, JIP has worked with the likes of U.S.
private equity firms KKR  KKR.N  and Bain Capital. This time it
will take the lead and will need to handle the two-dozen
companies and banks investing alongside it, such as chipmaker
Rohm  6963.T , financial services firm Orix  8591.T  and utility
Chubu Electric Power  9502.T .
    "They have a very nice track record of, not killing
companies and enriching themselves in the process, but rather of
creating value in these deals," said Ulrike Schaede, a professor
of Japanese business at the University of California, San Diego.
    "Will they find a lot of value at Toshiba? That's a separate
question."
    Toshiba declined to comment.
    Getting this far has already been a challenge. Talks with
banks for financing took months to finalise, causing a delay in
JIP's bid. Sources have said the firm had to iron out
disagreements with banks and investment partners over
post-buyout restructuring plans.
    The equity portion of the deal also took time to be
finalised, with several bankers blaming what they said was JIP's
difficulty in handling discussions within the consortium.

    LOW PROFILE
    Founded in 2002 with investment from Mizuho Financial Group
 8411.T  and Bain & Co among others, JIP later became
independent. CEO Hidemi Moue previously worked at a Mizuho
predecessor, the Industrial Bank of Japan.
    The firm seldom gives interviews. It sees its role as
helping to revive Japanese companies without drawing attention
to itself, said multiple people familiar with it.
    "Normally I am someone who works quietly in the background,
so I'm not used to speaking at these things," Moue said in a
presentation at a 2017 conference in Tokyo, a video of which is
available online.
    JIP works closely with management to turn the businesses it
carves out into independent companies, a process that can take a
decade in some cases, he told the conference.
    It is also careful not be seen as a "hagetaka", or vulture, 
said people familiar with the firm. A 2004 novel and a later
television series of that title popularised the image of a
rapacious foreign fund.
    Instead, JIP is strict on costs, including its own, to avoid
driving up fees and burdening the company it is working to turn
around, the people said.
    Top executives fly economy when going abroad, two of the
people said. One former JIP employee recalled that when having
dinner with management from investee companies, the fund would
pay from its own pocket. 
    And unlike some buyout firms, JIP does not employ outside
consultants to handle restructuring work, due diligence or
investment research, preferring to do it in house, according to
the former employee and another person with knowledge of the
matter.
    
    RECORD SALES
    JIP has invested more than 600 billion yen ($4.2 billion)
over 30 deals. It is not clear how much of its own money it is
investing in the Toshiba deal.
    After acquiring Sony's Vaio laptop business in 2014, JIP
focused on corporate customers - including Mitsubishi Corp
 8058.T  and Mizuho Securities - who now make up 80% of sales.
Large-scale orders helped Vaio achieve record sales of 35.8
billion yen in the year ended May, a spokesperson said, while
declining to comment on JIP.
    Vaio's two most recent CEOs have come directly from JIP.
    Shares of aviation equipment maker Nippon Avionics  6946.T 
jumped more than sevenfold since JIP carved out the listed NEC
 6701.T  subsidiary in 2020. It changed the company's
leadership, revised executive pay to introduce stock-based
compensation and started buying back shares.
    Success with Toshiba depends on whether new management can
exit low-margin businesses and figure out how to make money from
its advanced technology, said UC San Diego's Schaede.
    "That's probably the big question: Will they have the vision
and the assets to do that?"
    
    ($1 = 142.1500 yen)

 (Reporting by Anton Bridge, Makiko Yamazaki, Miho Uranaka and
Maki Shiraki; Editing by David Dolan and Christopher Cushing)
 ((david.dolan@thomsonreuters.com; +81 3 4563 2708;))