Toshiba’s CEO Steps Down, Raising Doubt Over Buyout Offers

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(Bloomberg) — Toshiba Corp. said Chief Executive Officer Nobuaki Kurumatani will be replaced by Chairman Satoshi Tsunakawa, an abrupt leadership reshuffling that casts doubt on potential buyout offers for the $20 billion Japanese icon.

Toshiba said the changes are effective immediately in an announcement Wednesday. The company will soon begin considering successors for Tsunakawa, who returns to the CEO job he held previously, said Osamu Nagayama, chairperson of the board, during a press conference in Tokyo.

The decision came as factions within the conglomerate mounted resistance to a preliminary buyout offer from CVC Capital Partners — where Kurumatani previously worked as Asia chief. Some executives felt the offer undervalued a storied Japanese corporation that still held valuable energy and semiconductor assets, according to people familiar with matter, who declined to be identified discussing internal issues. Separately, private equity firm KKR & Co. is exploring a rival offer for Toshiba, Bloomberg News reported.

“The optics, combined with the facts that CVC’s bid is now supposedly lower than KKR’s, and that CVC lacks experience with deals of such scale, probably mean it is out of the running,” said Mio Kato, an analyst who publishes on Smartkarma.

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Nagayama, the Toshiba board chairperson, said he isn’t sure whether Kurumatani’s resignation will affect talks with CVC because the offer is “very preliminary and not formal.”

The company’s shares rallied as much as 8.2% after news of KKR’s possible bid, but then gave up some of those gains to trade 4.4% higher.

Kurumatani suffered a sharp drop in support among the company’s executives and other employees. Employees who have confidence in the CEO fell to less than 60% in an internal January poll, down from more than 90% last year, Bloomberg News reported this week. More than 20% expressed a lack of confidence in his leadership, up from less than 5% previously.

The survey results prompted Toshiba to conduct detailed interviews with a narrower group of about 30 top executives and more than half of them expressed a lack of confidence in Kurumatani.

“Kurumatani’s resignation settles some issues, gives the new CEO some breathing room and the benefit of the doubt as long as he makes the right noises,” said Travis Lundy, an independent analyst who publishes on Smartkarma. “It will improve morale slightly internally as well. But the issues that have caused problems with shareholders are also at the board level.”

In the press conference Wednesday, Nagayama said the CEO was leaving because the company had made its return to the first section of the Tokyo Stock Exchange.

“Kurumatani offered his resignation as he feels his job to rehabilitate Toshiba is done with the return to the TSE’s first section,” Nagayama said. “We appreciate his efforts.”

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Kurumatani faced opposition outside the company too. He held on to his position by a slim margin last year, when only 57.2% of Toshiba shareholders approved of keeping him in the job. Questioning the transparency and process of that vote, Toshiba’s largest investor Effissimo Capital Management has requested an independent investigation, which was green-lit at an extraordinary shareholder meeting in March.​

KKR is weighing a bid that would be likely to value Toshiba above the $21 billion buyout proposal that it’s already received from CVC, said one person familiar with the matter, who asked not to be identified as the details aren’t public. Canadian investment giant Brookfield Asset Management Inc. is also in the preliminary stages of exploring an offer for the company, including how such a bid might be structured, a separate person with knowledge of the matter said.

The deliberations are at an early stage, no final decisions have been made, and the discussions may not lead to firm offers, the people said.

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