Toshiba can leave its the worst of its financial troubles behind and begin building a new growth engine to replace the chip memory unit, its top earner.
Chinese authorities have finally granted approval for the Japanese electronics conglomerate to sell the unit, and it plans to do so by June 1, the company said Thursday. An international team of buyers led by U.S. private equity firm Bain Capital, which will become the top shareholder, will pay roughly 2 trillion yen ($18 billion), of which Toshiba will keep around 1.45 trillion yen. Toshiba will also retain a roughly 40% stake that is expected to keep earning about 67 billion yen per year.
South Korean memory maker SK Hynix will also contribute financing, while U.S. computing companies Apple and Dell will get preferred stock. Japanese optical product maker Hoya will take a roughly 10% stake. Toshiba will also work with other participants on issues like adding production capacity, seeking to compete with market leader Samsung Electronics.
Toshiba need to get to better design strategy to achieve higher margins of profits. Toshiba minimum need to quickly reach the 10% range, the memory unit, which generated about 90% of operating profit need cash rich products in its arm. Toshiba focus the semiconductor segment more on automobiles, including power chips for electric and other vehicles, seeds that could grow into new businesses, including lithium-ion batteries, logistics robots in pipeline for its futuristic growth.
With kitty of 500 billion yen in debt and returning capital to shareholders, Toshiba aims to “channel much of the large capital infusion into fields with strong investment returns and achieving growth,” recently appointed CEO Nobuaki Kurumatani said at a Tuesday earnings conference. The company is narrowing its list of potential targets and aims to start investing this year.
Toshiba is rebuilding itself around new core segments of energy systems and infrastructure. Toshiba lacks the scale and profitability to compete on the world stage with giants specialize in their products. Acquisitions in fields like air conditioners and elevators seem promising, one analyst at a securities firm based outside Japan said, adding that the company may also reorganize by turning listed group companies into wholly owned subsidiaries.
It currently makes a roughly 2% operating profit margin on sales, while international rivals like General Electric and Siemens boast double-digit margins. Japanese compatriot Hitachi’s is around 8%.
Toshiba remains on the pile of liabilities, including those from a liquefied natural gas export facility under construction off the U.S. state of Texas, the Freeport LNG project, from which it has contracted to buy large volumes of fuel. The market for the gas has cooled unexpectedly, and Toshiba is having trouble finding buyers. The company is also looking to sell its money-bleeding PC business.
Reforming corporate governance also remains a concern. “It is vital to strengthen our transparency, internal communication and oversight capabilities,” Kuramatani said.