Toshiba Again Seeks Acquisitions After String of Deal Flops
(Bloomberg) -- Toshiba Corp., chastened by a string of disastrous overseas acquisitions, is once again looking to buy. This time more cautiously and closer to home in Japan.
The Tokyo-based industrial giant is looking at small and mid-size firms, especially those in areas adjacent to its own infrastructure services and digital technology businesses, Chief Executive Officer Nobuaki Kurumatani said in an interview.
Toshiba’s compiling a list of targets and is considering borrowing to bankroll the deals, but the former banker pledged to tread cautiously to avoid past mistakes. It’s still trying to raise capital by unloading its 40% slice of Kioxia Holdings Corp. though Kurumatani wouldn’t be drawn on when its chip spinoff might revive its delayed initial public offering.
Toshiba, once synonymous with the global ascent of corporate Japan, is trying to put years of scandal and missteps behind it. It narrowly avoided a delisting from the Tokyo Stock Exchange three years ago after multibillion-dollar losses at its Westinghouse U.S. nuclear unit pushed liabilities beyond its level of assets. It was forced to sell its prized semiconductor business and take an infusion of cash from a large contingent of activist shareholders. The writedowns and accounting scandals triggered a management shakeup and the appointment of Kurumatani, an outsider. Its shares have fallen 19% this year.
“One thing that changed is that I’m in charge now,” said Kurumatani, who spent four decades in banking before taking the helm of Toshiba in 2018. “The board is also applying very stringent standards to acquisitions. It’s a completely different company when it comes to the rigor brought to thinking about and screening deals.”
Kurumatani acknowledges many of Toshiba’s biggest deals haven’t worked out in the past. Westinghouse, which Toshiba bought for almost $4.2 billion in 2006, filed for bankruptcy in 2017 after suffering billions of dollars in losses from cost overruns on nuclear projects. Toshiba’s multi-year foray into liquefied natural gas trading ended badly in 2019 when it sold its rights at the Freeport LNG project in Texas at a 89.3 billion yen loss ($863 million) loss. In August, Toshiba sold its stake in South Korean turbine maker Unison Co. for less than a quarter of what it paid about eight years ago.
“Toshiba doesn’t have a good track record of successfully integrating acquisitions,” said Damian Thong, an analyst at Macquarie Group Ltd. “The question for the new management is what makes them think they are better than before.”
The CEO doesn’t need the board’s permission for purchases under 10 billion yen, which Kurumatani said allows him to move fast if he spots bargains. But Toshiba won’t be lured by opportunities for short-term profit gains and will instead make sure it can get a sufficient return on invested capital, he said. It won’t consider deals where it doesn’t have full confidence in integrating the target.
Kurumatani reaffirmed Toshiba’s intention of unloading its stake in former flash memory unit Kioxia, which he said no longer fit with his company’s remaining businesses. Kioxia pulled the plug in September on what could have been Japan’s biggest 2020 debut after U.S.-Chinese tensions buffeted the global semiconductor sector.
“Kioxia’s business is a risky one and there is very little connecting it to what we are trying to do,” he said. “There is no change in our plan to sell the stake and use majority of the cash for shareholder returns.”
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