Toshiba’s Extended Crisis from Scandal to Delisting

Remember when your TVs, computers, and gadgets might have all been made by Toshiba?

Well, that powerhouse of electronics from Japan, often called the hero of “Japan Inc.,” has recently vanished from the Tokyo Stock Exchange after a 74-year run.

Why did this big-shot Japanese company, once a star in electronics, suddenly disappear from the stock exchange?

The drama began back in 2015 when shady accounting practices surfaced, revealing a tangled web of financial mischief across various branches, including some top-tier managers. 

It’s hard to believe that for seven years straight, Toshiba had been artificially inflating its profits by an astonishing $1.59 billion.

Hi, I’m Nabeel Shaikh, a seasoned chartered accountant. Let’s explore the story of Toshiba’s debacle, a brand that defined Japan’s electronic era but is now facing an uncertain future after a decade of scandals and shake-ups.

History

Toshiba’s story dates back to a small shop and factory in Ginza’s “brick town,” founded in 1875, and Hakunetsu-sha & Co., Ltd., founded in 1890 as a maker of clocks and mechanical dolls. The tale involves Hisashige Tanaka, a mechanical genius known as Karakuri Giemon, and Ichisuke Fujioka, an electrical wizard often dubbed the Japanese Edison. 

These two pioneers set the stage for Toshiba’s birth as we know it today. Their insatiable curiosity and fervor continue to pulse through Toshiba’s veins. 

From Japan’s first color TV, washing machine, and refrigerator to pioneering the sale of rice cookers, Toshiba became a trailblazer. 

It didn’t stop there—soon, it evolved into a global powerhouse, making a mark with its TVs and laptops. The journey propelled Toshiba into diverse industries, making waves in semiconductors and nuclear power, solidifying its status as a formidable conglomerate on the world stage.

Downfall

In the past decade, Toshiba’s luck has taken a nosedive. While companies were busy pouring resources into the future of tech and innovation, Toshiba found itself in a tough spot—forced to part with a prized possession to generate much-needed cash. It’s like selling family jewels when everyone else is busy building castles.

Accounting Fraud Scandal (2015):

The bombshell dropped in 2015 when the company owned up to seven years of cooking the books, confessing to overstated operating profits. Revelations unveiled a web of malpractices across multiple divisions, involving top management. 

The company admitted to overstating its operating profits by a staggering 230 billion yen ($1.59 billion) over seven years. 

Financial Crisis and Asset Fire Sale (2017):

In 2017, Toshiba faced a severe financial crisis triggered by the bankruptcy of its United States nuclear plant subsidiary, Westinghouse Electric. This led to debts surpassing assets, prompting the need for drastic measures. 

Toshiba initiated a massive asset fire sale, including the sale of its prized chip unit, Toshiba Memory, for $18 billion to a consortium led by Bain Capital. 

The company’s desperate bid to correct the imbalance between debt and assets aimed at avoiding delisting from the stock exchange. 

Conflict with Activist Shareholders (2017-2022):

Seeking to stabilize its financial standing, Toshiba accepted funds from overseas activist investors in 2017. However, this move sparked a new set of challenges, including conflicts over crucial business decisions. 

The company sold off major units, such as its TV and PC divisions, and spun off its semiconductor division. A series of management changes ensued, culminating in Japan Industrial Partners acquiring all shares and delisting the company from the stock exchange in 2022. 

A Timeline of Downfall 

Let’s break down the events from 2015 to the delisting from the Tokyo Stock Exchange:

2015: Toshiba gets caught with its hands in the cookie jar, admitting to cooking the books for seven years. That’s like saying they exaggerated their profits by a mind-boggling $1.59 billion.

Dec. 2016: They get hit with a massive bill related to a nuclear power plant purchase. Imagine buying a fancy gadget and then finding out it’s defective, but on a way bigger scale.

March 2017: One of Toshiba’s big branches, Westinghouse, files for bankruptcy. To cope with the financial fallout, Toshiba decides to pawn off its golden goose—the chip unit.

Sept. 2017: They find a buyer for the chip business, a group led by Bain Capital, for a whopping $18 billion. It’s like selling your vintage record collection to pay off debt.

Dec. 2017: Toshiba gets a financial lifeline—$5.4 billion in cash—from overseas buddies. They also patch things up with some feuding partners.

Jan. 2020: More financial missteps pop up, this time from a subsidiary. It’s like finding out your kid hid a bad report card.

July 2020: Activist shareholders try to shake things up by nominating new board members, but it doesn’t go as planned.

Sept. 2020: Toshiba confesses that it messed up counting votes at its annual meeting. It’s like your school admitting they miscounted the votes for the prom queen.

March 2021: Shareholders smell something fishy and call for an investigation into allegations of shady dealings.

April 2021: A big investment group makes a bold offer to take Toshiba private. The CEO steps down, and the drama unfolds with some shareholders not happy with the rejection of the offer.

June 2021: Investigation findings reveal Toshiba played dirty with the Japanese government to keep foreign investors at bay. Shareholders kick out the board chairman.

Nov. 2021: Toshiba decided to split into three companies, thinking smaller is better.

Feb. 2022: They change their minds and go for a two-way split. The CEO resigns, and there’s a drama with shareholders rejecting the plan.

April 2022: A special committee is formed to figure out what to do next. Investors express interest, and Toshiba throws them a financial bone with a special dividend.

June 2022: Toshiba gets buyout proposals, and shareholders finally approve some activist directors.

July 2022: Four potential buyers, including Bain Capital, CVC, and a Japanese consortium, make the shortlist.

Oct. 2022: The Japanese consortium gets the nod, becoming the favorite.

Feb. 2023: Toshiba confirms an offer from an all-Japanese group led by JIP, and it looks like they’ve got the cash.

March 2023: Toshiba agrees to JIP’s $21 billion offer, and the process kicks off.

August 2023: JIP launches the buyout offer, and by September, it’s a done deal.

Dec. 20, 2023:

Toshiba bows out of the stock exchange after 74 years. It’s like the end of an era for the tech giant.

Future Outlook

Government Oversight 

With about 106,000 employees and operations deemed crucial for national security, Japan’s government is closely monitoring Toshiba’s transition. The company’s significance to the nation adds an extra layer of scrutiny. 

Board Evolution 

As part of the restructuring, four executives from Japan Industrial Partners (JIP) will join the board. Additionally, representatives from Orix and Chubu Electric will contribute their expertise. 

Notably, the new all-male board, a change from the previous year, reflects a strategic shift. This revamped board will also welcome a senior adviser from Toshiba’s main lender, Sumitomo Mitsui Financial Group.

Toshiba expresses sincere gratitude to its shareholders and stakeholders for their continuous support over the years. The company acknowledges the understanding and backing it has received since its listing.

With a new shareholder, Toshiba Group is poised to embark on a significant journey toward a fresh future. 

Nabeel Shaikh’s Insights for Readers 

The Toshiba story is like a big warning sign for all of us, showing that even giants can stumble. Here are some straightforward lessons we can all take away:

Honesty Always Wins

Don’t mess with the numbers. Toshiba’s trouble started when they played fast and loose with their finances. So, for any company or person, being honest and transparent about money matters is crucial. 

Companies Need Watchdogs

Think of a company’s board as a watchdog. Toshiba’s board wasn’t barking loud enough when things went south. A company needs a good watchdog to keep an eye on everything, especially the money stuff. 

Don’t Spend More Than You Have

Toshiba faced a money crisis because it spent more than it had. It’s like when we buy too many things on our credit card and struggle to pay it back. Smart money decisions are key. 

Listen to Everyone, Especially the Shareholders

Toshiba had big fights with some of its owners. It’s a reminder that listening to everyone, especially the people who own the company (shareholders), is super important. If the boss listens, things usually go better. 

Change with the Times

Toshiba didn’t keep up with the cool new things in tech. It’s like not upgrading your phone for years. Businesses, like us, need to keep up with what’s new to stay in the game. 

Think Long-Term, Not Just Short-Term Wins

Toshiba wanted quick wins, but it hurt them in the long run. It’s a bit like eating too much candy—it feels good now, but not later. Businesses need to think about what’s good for them in the long run, not just quick wins. 

Your Reputation Is Gold

Toshiba’s name took a hit. It’s a reminder for all of us that a good reputation is like gold—it’s hard to get back once you lose it. Being honest and doing the right thing is the best way to keep your reputation shining.

It’s like a guide for anyone who wants to avoid the bumps and turns in their own journey. Stay honest, watch your money, listen to others, and think about the long game. Toshiba’s story isn’t just theirs—it’s a guide for anyone steering through the twists and turns of their own adventure.