In some countries around the world, to encourage development some private companies received the government’s blessing to become conglomerates or to be involved in many different industries. At the time, there seemed to be a ration reason by the government, for example in Japan after WW II, the country needed to be rebuilt. Companies that became successful were given responsibility for national interest divisions which the government funded most of the research and development. However through the funding of the national interest division, the company was given a favored status in the areas where there was more competition. One thing lead to another and soon there were a number of large conglomerates in Japan (and other countries) which still exist.
In an article by Makiko Yamazaki, Scott Murdoch and Kane Wu of Reuters, KKR & Co has accumulated shares of Toshiba and believes if the company was taken private and split up to become public again, there would be wealth to be gained. With giant fund companies such as KKR, they have access to capital to with their various funds but need the government’s blessing that it is in the best interests of Japan. To do a buyout would cost around $22 billion and Toshiba said over the past month it has received 8 initial buyout proposals as well as 2 offers for capital alliances that would see it remain listed.
KKR’s competitors are Apollo Global Management, Bain Capital, Blackstone Inc, Baring Private Equity Asia, CVC Capital Partners, and MBK Partners. As well as Japan Investment Corp (JIC) is forming a consortium with domestic private equity firm Japan Industrial Partners to bid.
Linking to dividend paying stocks, at one time conglomerates were seen as too big or too protected by the government, but times change and evolve. Once the protection by the government is seen to lessen, conglomerates are evaluated the same as any other stock and management must perform to the satisfaction of shareholders. If you are a small investor, this means the large funds are expecting the same results as you are. However if the results do not measure as a small investor you are likely to find alternatives, the larger funds are likely to change management and the company from the inside.
There are more questions than answers, till the next time – to raising questions.