Another giant in Japan is going to cool off

The barbarians have come to the doorstep, can this giant in Japan still rise again?

Another giant in Japan is going to cool off

01 Uninvited guest

On April 6 this year, Toshiba had an uninvited guest: CVC Capital, a British private equity firm, made an uninvited takeover offer at a 30% premium, or about $21 billion.

Another giant in Japan is going to cool off

Image source: Nikkei Asia

The first reaction of Toshiba’s board of directors was “sudden”, and then rejected it for “lack of details”.

Some PE people also said privately that unless Toshiba’s largest shareholders “fall in line”, CVC could not complete the acquisition.

But it didn’t take long for what came to be came to be.

Twenty days later, Singapore private equity firm 3D Investment Partners, the second largest Toshiba shareholder’s wholly-owned investment management service, sent a public letter “forcing” Toshiba’s board to do a full evaluation of the sale.

3D Investment Partners even advised Toshiba’s management to put away its hostile attitude so as not to scare off potential acquirers, as if it was afraid of missing the opportunity to sell.

There is a reason why 3D Investment Partners wants to sell at a good price, because Toshiba today, has become more and more like a hot potato.

Since 2015, in order to make up for the deficit caused by seven years of financial fraud, the blood-starved Toshiba has been selling off iron. Today, only six businesses remain under its umbrella, including energy, digital solutions, retail and printing, construction, public services, electronic devices and storage.

Compared with the old days, Toshiba has fallen. fiscal year 2019, its six business net sales have fallen to about 3.39 trillion yen, compared with the heyday of 2014, close to 7 trillion yen, nearly cut.

But after all, it is the industry leader with a century-old base once, the thin dead camel is bigger than the horse, in the eyes of many PEs, Toshiba’s remaining business portfolio is still worth buying to operate, so the CVC thing is not yet the next episode, other PE giants have come to the door.

US private equity firm KKR announced to the public that it intends to participate in the bid at a higher price than CVC; Brookfield Asset Management Inc, the Canadian investment firm that previously bought Toshiba’s nuclear power business, is also considering participating in the bid ……

Japanese investment company JIC, Norinchukin Bank and Bain Capital, are also rubbing their fists, each with the intention of capital as if they have been sure that Toshiba will be sold, have joined the “hunt” in.

If it were decades ago, they would have dared to have such a humiliatingly great desire for Toshiba.

02 The Light of Japan

“Toshiba, Toshiba, the Toshiba of the new era.”

Another giant in Japan is going to cool off

In the 1990s, this commercial, shot by Sakai Fako, who was as popular as ever, became part of many people’s memories, along with her sweet smile, and Toshiba also became the first impression of Japanese manufacturing for Chinese people in that era.

Toshiba, for a long time, was the symbol of Japanese manufacturing.

Another giant in Japan is going to cool off

Toshiba’s exhibition at the 1970 Osaka World’s Fair Photo credit: Archpaper Magazine

During the Meiji Restoration period, Japan vigorously advocated learning Western technology and actively promoted modernization, and a number of industrial companies emerged in response. Among them was Toshiba’s predecessor, the Tanaka Manufacturing Company, which was founded in 1875 by the famous Japanese inventor Hisashige Tanaka.

Another source of Toshiba was Tokyo Electric Co. The two companies merged in 1939 and were officially renamed Toshiba in 1984, playing an important role in the lives of Japanese people. Toshiba produced the first white-hot electric light bulb, the first transistor TV, the first hydro generator, the first rice cooker, refrigerator, microwave oven, and the first word processor …… in Japan.

In its heyday, Toshiba’s business covered infrastructure, power generation, nuclear energy, home appliances, computers, manufacturing, and semiconductors, and achieved one of the world’s top results in several fields.

In particular, Toshiba was a pioneer in white goods in the home appliance field. In the 1970s, Toshiba’s home appliance business accounted for 30% of Toshiba’s total revenue, and Toshiba, together with Sharp and Panasonic, was known as the “Big Three” of Japanese white goods. Toshiba’s position in Japan is like that of Samsung in South Korea.

Toshiba is also one of the most important chip manufacturers in the world.

In the 1980s and 1990s, with the support of the Japanese government, Japan’s semiconductor industry flourished and became increasingly competitive with the United States in the DRAM (Dynamic Random Access Memory) industry.

As one of the five main companies selected by the Japanese government at the time, Toshiba developed a W plan in 1982, investing 34 billion yen and 1,500 technicians into the development and production of DRAM.

In 1985, Seizo Saito of the semiconductor team developed the world’s largest capacity 1M DRAM at that time, and Toshiba surpassed the United States to become the world’s leading semiconductor manufacturer.

In the seventh year after the implementation of Project W, Toshiba ranked second among the world’s top ten semiconductor manufacturers, behind only NEC (Nippon Electric). At that time, Toshiba’s stock price was at an all-time high of about 1,500 yen.

In its heyday, Toshiba was a giant with 180,000 employees and was not only one of the top five semiconductor manufacturers in the world, but also one of the top three medical device manufacturers in the world, the second largest integrated electric machinery manufacturer in Japan, and one of the four largest nuclear energy manufacturers in Japan.

03 Transitioning to a minefield

In February 2006, Toshiba beat out its competitors to take a 77% stake in WestingHouse, the largest nuclear power plant manufacturer owned by British Nuclear Fuels (BNFL), after a fierce bidding process.

Another giant in Japan is going to cool off

Toshiba spent $5.4 billion, or three times the amount offered by Westinghouse, to close the deal due to vicious competition from GM and Mitsubishi of Japan. But Satoshi Nishida, Toshiba’s president and chief executive officer at the time, was convinced that Westinghouse would bring huge and long-term economic benefits to Toshiba.

At the time, Toshiba’s position in both the consumer electronics and semiconductor businesses was being challenged and new businesses needed to be developed to reduce reliance on these two traditionally dominant businesses.

In the semiconductor business, Toshiba missed market opportunities due to a series of poor decisions.

As early as 1984, Toshiba’s R&D director, Fujio Misakioka, used his time “under the desk” to develop NOR flash memory, but at that time Toshiba’s main track in semiconductors was in DRAM and did not pay much attention to his invention.

As a result, Intel picked up the slack. In 1988, Intel improved the NOR invented by Toshiba and launched the world’s first commercial flash memory chip, also known as the “American Dream”. “.

Unconvinced, Fujio Misakioka proposed the concept of NAND-type flash memory in 1987, which was more suitable for data storage and lower cost.

But Fujio Misakioka’s luck was not good, his uncle, Toshiba Institute of Super-Scale Integrated Circuits director Hiroyuki Takeshi unfortunately passed away, has always been a maverick unpopular Misakioka Fujio no backers, was transferred from the R & D team, NAND follow-up research and development was put on hold.

It was not until the 1990s, when the wave of information technology swept the world, personal computers became popular, and Dell, which sold personal computers, entered the Fortune 500, that Toshiba put the research and development of mass production of NAND back on the agenda, but once again, the god of luck turned its back on Toshiba.

At that time, Japan’s economic bubble burst, Toshiba also entered into a comprehensive strategic contraction, considering that NAND flash memory research and development will take at least 2-3 years to pay back, there are risks, Toshiba management not only did not invest in research and development, but also scaled back the investment in semiconductors.

In 1993, Samsung took the No. 1 position in the global memory field, and Toshiba, which had the first-mover advantage in NAND technology, was suppressed by Samsung and became the second oldest in the world.

Another giant in Japan is going to cool off

Market share of chip companies in the world from 1980 to 2015

In the consumer electronics business, Toshiba has also felt the pressure from Chinese home appliance brands.

Since 2000, Chinese home appliance brands began to rise, and the emergence of Midea, Haier, Gree, TCL, Konka, etc. made Toshiba’s consumer electronics business lose ground in the Chinese market and inevitably go into decline.

With the successive setbacks in the semiconductor and consumer electronics businesses, Toshiba’s management turned its attention to the nuclear power business.

At a time when non-renewable energy sources were dwindling worldwide and the environmental pollution caused by coal burning was a cause for concern, nuclear energy was gaining renewed popularity in countries around the world. In 2006 alone, a total of 222 nuclear power plants were under construction or proposed worldwide.

Toshiba’s management was optimistic about the future of nuclear energy, but in the field of nuclear power, Hitachi and GE, Mitsubishi and Areva had formed an alliance, and Toshiba did not yet have a seat at the table.

At this point, Westinghouse Electric entered Toshiba’s vision.

Westinghouse is the builder of most nuclear reactors in the U.S. and has participated in bidding for China’s third-generation nuclear power plant projects, and its AP1000 third-generation pressurized water reactor technology meets the technical requirements of Chinese nuclear power plants. Toshiba has not been able to become the main supplier of nuclear power plants in China because of its boiling water reactor technology. Taking over Westinghouse means getting a ticket to enter China, the world’s largest single nuclear power market, and thus dominate the global nuclear power market from 2025 to 2030.

With this global nuclear dream in mind, Toshiba plunged headlong into it and took Westinghouse at all costs.

But to our surprise, it was this deal, which was made at three times the price, that dragged Toshiba into the quagmire.

04 Break the arm to survive

Toshiba’s Tokyo headquarters building on July 21, 2015.

Toshiba’s three presidents, Atsushi Nishida, Sasaki and Hisao Tanaka, stood up in unison and bowed to apologize to the public in the face of the media’s long and short guns.

Another giant in Japan is going to cool off

Toshiba before and after the three presidents Satoshi Nishida, Sasaki and Hisao Tanaka bowed to apologize

Until then, Japanese people knew that for seven years from 2008 to 2014, Toshiba, a symbol of cleanliness and efficiency in their minds, had made a hole of 224.8 billion yen (about 12 billion yuan) in financial fraud.

Once the news came out, Toshiba’s stock price plummeted and its market value shrunk by 40%, and President Hisao Tanaka and Vice Chairman Sasaki announced their resignation.

This financial fraud, in the year when the high price of buying Westinghouse Electric, has laid the groundwork.

After the acquisition of Westinghouse, the subprime mortgage crisis swept the world in 2008, Toshiba under the tenure of Atsushi Nishida, in 2009, delivered the worst report card in its history, with a net profit deficit of 343.5 billion yuan.

In that year, Nishida Atsushi retired from the position of president and was succeeded by Sasaki, who had a technical background and had been in charge of the nuclear power business. At the handover ceremony, Atsushi Nishida spoke highly of Sasaki as “the person responsible for putting Toshiba’s nuclear power business on a global track”.

Toshiba also has high hopes for its nuclear power business, and the company expects to receive orders for 39 nuclear reactor equipment worldwide by 2015. In fact, by 2009, Toshiba already had 12 orders in hand and was on track to meet its expected targets.

However, on March 11, 2011, an earthquake triggered a leak of radioactive materials from the Fukushima nuclear power plant in Japan, and the builder of the plant where the leak occurred was none other than Toshiba.

After the accident, governments were cautious about nuclear power construction, and many countries suspended nuclear power operations and reassessed the safety of nuclear power plants. Toshiba was not only unable to get new orders, but some of the orders already signed were also cancelled.

Toshiba’s dream of nuclear power was completely shattered, and pressure on performance followed.

In the name of “meeting the challenges”, Toshiba’s third-generation president demanded that the company’s profits be increased. However, this was an impossible task in the prevailing market conditions.

What if it could not be done? Toshiba’s management had a bad idea to meet the “challenge” through financial falsification.

It is speculated that the strong Nishida Atsushi was not satisfied with Sasaki’s business operations during his tenure, and Sasaki did not want to be blamed by Nishida Atsushi, so he asked for false accounts, while the cowardly and incompetent Tanaka Hisao continued the practices of the previous two presidents in the shadow of the arbitrary and autocratic Sasaki.

After the exposure of the financial fraud, Toshiba did not quickly cut the bottomless hole of burning money, Westinghouse Electric, but instead acquired the nuclear engineering business of Cibiere Inc. through Westinghouse Electric for $229 million in an attempt to make a larger volume.

However, after the acquisition was completed, Toshiba realized that the business was carrying $4.2 billion in debt. Toshiba, which was already short of blood, had a bigger financial hole: in fiscal 2016, Toshiba’s net loss was as high as 965.7 billion yen, or about $8.8 billion, the largest annual loss in the history of Japanese manufacturing companies.

Another giant in Japan is going to cool off

Since then, Toshiba has had to embark on the road of “selling off its family assets” to get back the blood.

Ltd., the main appliance business, sold 80.1% of its shares to Midea for 51.4 billion yen, and Midea received a 40-year global license for the Toshiba brand.

Toshiba Medical Systems, the medical equipment division, was sold to Canon for 665.5 billion yen.

Image sensor business, sold to Sony for 19 billion yen.

Toshiba, which produced the world’s first laptop, also sold 80.1% of its laptop business to Sharp for $36 million. 2020 saw Toshiba officially leave the laptop business after Sharp exercised its right to buy the remaining 19.1% of Toshiba’s laptop shares.

In 2017, Toshiba took the most profitable semiconductor business and sold it to Bain Capital for $18 billion.

It was not until 2018 that Toshiba sold the hot potato of Westinghouse Electric to Brookfield Asset Management of Canada for $4.6 billion to get rid of the burden that dragged Toshiba into the mud.

Toshiba’s 146 years of foundation, in just ten years, dramatically towards disintegration. Until today, the “barbarians” have arrived at the door.

Throughout Toshiba’s nearly four decades of history, the economic bubble, the subprime mortgage crisis, the Fukushima nuclear power plant leakage and other black swan events, let people lament Toshiba’s bad luck at the same time, but also had to examine, Toshiba management in the strategic direction, capital and technology investment, personnel management shows a lack of vision and lack of crisis awareness, is the light of Toshiba to the decline of man-made disaster.

References.

[1] “$20 Billion, Global PE Roundup of Toshiba” cast in the net

[2] “How Toshiba, the “Pride of Japan”, fell to selling itself step by step? Wall Street Insight

[3] “Toshiba, the former “Light of Japan”, is being hunted” Punch News

[4] “Toshiba’s Apocalypse: 143 Years of Business Collapses, What the Giant Did Wrong” (Vaishang Shuanshu)

[5] “Back on top, the 20-year war of technicians” NHK

This article is produced by: Bi Yajun, Editor-in-Chief: Wang Xiao , Editor-in-Chief: Zhou Yi, Editor: Liu Yanchao, Operation: Fang Ledi, Zhang Chan, Ni Chen

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/another-giant-in-japan-is-going-to-cool-off/
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