Toshiba’s Plan to Split Into Two Opposed by Investor Adviser Glass Lewis

(Bloomberg) -- The opposition to Toshiba Corp.’s proposal to split into two companies is mounting, with a second influential proxy advisory firm and yet another major shareholder coming out against the plan.

Glass Lewis & Co. urged investors to vote against the plan because the process that led to it relied on “flagrantly dubious reasoning” and sidestepped investor feedback and private equity buyout interest. Instead, the company endorsed “a complex, costly and poorly reasoned three-way split” before altering its plan shortly after to split into two instead, Glass Lewis said in its report Thursday.

The advisory firm also recommended investors support a proposal from activist investor 3D Investment Partners Pte for Toshiba to launch a new strategic review to explore other options, including the sale of the company.

“We believe investors have been provided clear reason to reject a further examination of the plan, as currently structured, and support a fresh process,” Glass Lewis said. 

Glass Lewis’ recommendation echoes that of another prominent shareholder advisory firm, Institutional Shareholders Services Inc., which came out against Toshiba’s plan on Wednesday. ISS argued that shareholders should vote against 3D’s proposal for another strategic review, though, because the company’s annual general meeting is expected to be held in three months, allowing governance issues to be addressed then.

Activist investor Effissimo Capital Management Pte, which is Toshiba’s largest shareholder, holding a roughly 10% stake in the company, also spoke out against the plan on Thursday, saying that such a split would be irreversible and could be detrimental in the longer term. On Friday, Farallon Capital Management became the latest major stockholder to voice its objection, saying Toshiba’s proposal was “premature” and arguing for a privatization instead.

“We are deeply concerned by the disarray at the Company and regret the further erosion of trust Toshiba has caused by changing the method – and resulting vote threshold – of its proposed spin-off plan while refusing to engage with potential private equity acquirers,” the firm said in a statement.

A representative for Toshiba wasn’t immediately available for comment on the Glass Lewis recommendation. The company said earlier Thursday that it will continue to make every effort to explain its proposal to shareholders to gain their support in response to ISS and Effissimo’s opposition. 

The matter is slated to go to a shareholder vote at a special meeting slated for March 24. 

Last month, Toshiba scrapped a proposal to divide into three listed companies, deciding to separate into two instead. The original plan faced stiff opposition from large shareholders, including 3D.

Instead, the company intends to spin off its devices business, which includes semiconductors, and list it, arguing a two-way split would be cheaper and smoother than the original plan. Toshiba will also sell a 55% stake in air-conditioning business Toshiba Carrier Corp. to its U.S. joint venture partner Carrier Global Corp. for about 100 billion yen ($861 million), the company said at the time.

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