All around the globe, investors look for value or hidden values that with some changes will unlock the value. One of the areas where people see value is in large conglomerates. The companies grew larger for a variety of reasons including the government ensuring one or more divisions had readily sales due to the government calling it a national security. At some point, investors begin to examine conglomerates and wonder if the company was broken up, would the parts be worth more than the existing?
In an article by Mayu Sakoda, Makiko Yamazaki, and Takaya Yamaguchi of Reuters, the company known as Toshiba is a prime example of the conglomerate to be broken up. Toshiba has over 116,000 employees involved in chip making, nuclear energy and what most of us their retail electronics. In 2015 there was a accounting scandal and ever since the company has lurched from crisis to crisis. One of the many concerns is major shareholders and management do not agree on the direction the company is taking.
A solution was devised of a potential buyout by Japan Industrial Partners (a private equity firm) and Japan Investment Corp (a state backed fund). The plan was going well until the issue of do we retain the existing management team? The private equity firm said yes, the state back fund said no and departed as a partner. The issue of retaining or letting go the existing management team is not an easy one because there are advantages and disadvantages to both sides. However, if you believe many changes must be carried out, something the Japanese banks believe, do the banks want to risk their money if many changes are not done?
Japan Industrial Partners which has previously bought out Olympus Corp’s camera business and Sony Group’s laptop business is trying to find partners to secure equity and financing commitments.
Japan Investment Corp is in talks with Bain Capital and north Asia fund MBK Partners to form a competing bid.
Linking to dividend paying stocks, companies that grow often have the government as a wonderful partner-either direct or indirectly. This partnership is the government backing the company to grow and some of what it is doing is in the national interests of the government. The national interest can be such as Toshiba chip making and nuclear energy, as a government you would not want to have competing nuclear energy firms so they back one over the other. It could be the research and development the company is involved with, there are multiple avenues where it could work. The issue is at some point the economy changes, government changes and they are not long the government’s interest. Many companies have a balancing act. If you have investments in a company which is protected by national interest of the government, how secure is it?
There are more questions than answers, till the next time – to raising questions.