Elliott Management Joins “Wolfpack” Of Activist Funds Targeting Toshiba

Despite the tremendous rise and fall in SoftBank shares over the last 18 months, Elliott Management’s position in the Japanese telecoms-giant-with-a-VC-arm-attached is likely still in the green, partially thanks to Elliott’s strategy of pushing for more buybacks (although all the buybacks in the world likely couldn’t offset more “zeros” from soured investments in early-stage and mid-stage Silicon Valley startups).

But, for better or worse, Paul Singer and his nearly $50 billion activist hedge fund have decided to apply the same approach (push for endless corporate buybacks) to a less-willing Japanese partner: Toshiba.

According to the FT, Elliott has joined a “wolfpack” of activist funds who are investing in Toshiba, in an attempt to seize control of the Japanese giant and install management that would be more friendly to Elliott’s strategy for boosting the company’s share price: sell off several subsidiaries to PE buyers, then use the money raised to finance stock buybacks up the wazoo.

Most Americans probably remember Toshiba for the DVD players, TVs and other consumer electronics it once produced and sold in droves. But in more recent decades, the company has been badly mismanaged. It was forced to sell off its once-prized chips business in 2018 to offset losses generated by a disastrous foray into the nuclear power business. Then, back in June, Osamu Nagayama, the chairman of its board, was ousted in a rare vote by shareholders to oust the chairman of a major Japanese firm in the wake of an accounting fraud scandal. In Japan, taking out board members and management in such a brusque style simply isn’t done.

Now, the board is at a cross-roads. It’s in the final stages of a strategic review demanded by above-mentioned “wolfpack”. They’re pressuring the company to agree to set of measures that would beef up the stock price (selling assets, funding buybacks). According to the FT, activist and special events funds are “camped out in Toshiba’s shareholder register in the expectation that investors can force the company into a strategy that would significantly raise its share price.”

Sources told the FT that Elliott’s stake hasn’t yet topped 5% (the threshold at which its ownership stake would need to be publicly disclosed). But in recent days and weeks, Toshiba’s board has engaged in “unprecedented levels” of talks with investors as the “strategic review” continues.

Ultimately, the goal is a private equity buyout of the entire firm that could value the firm at more than $30 billion. If that doesn’t work, investors are hoping to force a sell-off of Toshiba’s most valuable subsidiaries and will use the proceeds to pump up the stock price the old fashioned way – with a torrent of buybacks.

At this point, the FT says several of the activist funds have threatened the board and management, claiming that if the “strategic review” doesn’t include pursuing a deal with private equity, they will vote to oust the current CEO. However, interest on the PE side is apparently lukewarm, per the FT, which spoke to two large buyout firms that said they had looked at a possible buyout, and passed. Bloomberg later reported that Toshiba started pursuing a plan to go private back in May.

Elliott confirmed its in investment in Toshiba to Bloomberg, saying it was “encouraged by the company’s underlying value.”

“Our investment in Toshiba reflects our strong conviction in the company’s underlying value,” an Elliott spokesperson said in an emailed statement. “We have been encouraged by the constructive nature of our engagement with the company in recent months.”

So, the big question now: will we see Toshiba be taken private by Apollo, Blackstone or one of their major competitors (we’ve heard Warren Buffett is interested in opportunities in Japan)? Or will it be broken down and sold for parts, allowing the financiers to extract this “value” in the form of profits…well, we don’t need to tell you what happens, you’ve probably seen Wall Street.