Toshiba Machine President Braces for Tough Battle With Activist

(Bloomberg) --

Toshiba Machine Co. is bracing for “a very tough battle” with controversial activist investor Yoshiaki Murakami on March 27, when shareholders will meet to decide the outcome of one of the highest-profile Japanese takeover battles in recent years.

President Shigetomo Sakamoto said in an interview with Bloomberg News that it won’t be easy to sway a majority of shareholders against the activist. He needs over 50% of them to vote in favor of the company’s so-called poison pill, a plan to issue new stock to existing investors to fend off the takeover bid. Falling short of that would effectively hand over the reins of the company to Murakami, who launched a tender offer to boost his stake to about 44%, Sakamoto said.

Over the past month, Toshiba Machine has waged a public campaign to get investors on its side. The company promised to reduce its workforce by as many as 300 people and raise operating profit margin to 8% by fiscal 2023, more than double its average over the past five years. In its mid-term plan released early last month Toshiba Machine called for 30 billion yen ($279 million) in capital and research spending to ensure long-term growth. It also pledged 15 billion yen in shareholder returns, including a 3 billion yen special dividend next year if it prevails against the activist.

“I’ll be honest, this is going to be a very tough battle,” said Sakamoto, who took over as president last month. “Getting the majority won’t be easy.”

The response from investors has been mixed. While overseas shareholders are generally supportive, domestic financial institutions have been wary of taking drastic measures, Sakamoto said. Toshiba Machine’s shares have slid more than 22% since Murakami announced his bid in January and have been consistently below his offer price of 3,456 yen since the company announced its poison pill. They closed at 2,880 yen on Thursday.

“The shareholders face a choice between the short-term return championed by Mr. Murakami and investments aimed at long-term return, which we stand for,” Sakamoto said. “It is up to them to judge whether this company has growth potential.”

The company’s charm offensive is running up against rising concerns over the spread of the coronavirus, which has sent stock markets tumbling around the world. Toshiba Machine’s biggest exposure is to the automotive sector, where slowing demand for new cars and delay in the adoption of electric vehicles would impact orders for the company’s manufacturing equipment. Sakamoto acknowledged that cautious sentiment among investors would work in Murakami’s favor.

Murakami has previously argued that Toshiba Machine’s proposal would require a two-thirds majority, something Toshiba Machine disputes. Murakami extended his takeover offer until April 16, to allow for consideration at the shareholder meeting later this month. A representative for Murakami said the activist still believes Toshiba Machine needs two-thirds of votes to push its poison pill plan through, declining further comment.

“There is a way to improve corporate governance and maximize shareholder value without proposing a change in management,” Murakami wrote in an emailed response to questions from Bloomberg News in January. “We just want to have a voice that lets us contribute to the improvement of Toshiba Machine’s shareholder value.”

Both sides have disclosed correspondence between them in an effort to sway public opinion. Toshiba Machine has detailed Murakami’s previous deals, saying his track record is one of disposing of shares at a profit and would go counter to management’s mission of increasing the enterprise’s value. Murakami has said he has the best interests of both the managers and shareholders in mind.

Murakami is considered one of the pioneers in Japan’s battle for shareholder rights and he put forward the first hostile takeover bid by an investor in the country. In 2007, he was convicted of insider trading and received a two-year prison sentence, which was suspended on appeal.

“Mr. Murakami has no interest in talking about our actual business, nor does he understand it,” Sakamoto said. “His plan is just to make us cough up the cash we have right now.

To contact the reporters on this story: Pavel Alpeyev in Tokyo at palpeyev@bloomberg.net;Yuki Furukawa in Tokyo at yfurukawa13@bloomberg.net

To contact the editors responsible for this story: Edwin Chan at echan273@bloomberg.net, Vlad Savov

©2020 Bloomberg L.P.