AT A GLANCE
- Accounting Scandal Unveiled (2015): Toshiba faced a major setback when accounting malpractices, involving top management, led to a seven-year overstatement of profits by $1.59bn (£1.25bn).
- Governance and Collusion Allegations (2020-2021): The troubles for the company expanded with allegations of corporate governance issues and collusion with Japan’s trade ministry to suppress foreign investors’ interests, causing uncertainty in Japanese stocks.
- Nuclear Business Collapse (2016): Toshiba’s acquisition of Westinghouse Electric’s nuclear power plant led to a $6bn liability after Westinghouse filed for bankruptcy, forcing the company to sell off various businesses, including mobile phones and medical systems.
- Cash Injection and Activist Shareholders (2017): To avoid delisting, the company secured a $5.4bn cash injection from overseas investors in 2017, giving activist shareholders increased influence and leading to internal battles over the company’s direction.
- Buyout Proposals and Takeover (2022): In June 2022, the company received eight buyout proposals and confirmed a $14bn takeover by Japanese investors led by state-backed Japan Investment Corp (JIC).
- Future Focus on Digital Services (2023): While the new owners, led by JIC, plan to focus on high-margin digital services, the path to Toshiba’s recovery remains unclear. The company’s size and significance, employing 106,000 people with operations critical to national security, present challenges for the turnaround.
Toshiba’s Fall from Grace: A Saga of Accounting Scandals, Financial Woes, and Transformation
Once hailed as a symbol of Japan’s technological prowess, Toshiba, a company that once manufactured a variety of electronic goods such as TVs, computers, and speaker systems, has experienced a significant downturn in its fortunes. The firm, which played a pivotal role in the era known as Japan Inc, recently underwent the process of delisting from the Tokyo Stock Exchange, concluding a remarkable 74-year presence in the market.
From Japan Inc. Hero to Market Exile: The Accounting Scandal that Toppled the Japanese Tech Giant Toshiba
The saga of Toshiba’s decline commenced in 2015 when revelations of accounting malpractices surfaced, implicating multiple divisions and high-ranking executives. Over a span of seven years, the company had inflated its profits by an alarming $1.59 billion (£1.25 billion). The situation worsened in 2020 as additional accounting irregularities came to light, coupled with allegations related to corporate governance and shareholder decision-making processes.
A subsequent investigation in 2021 unveiled collusion between Toshiba and Japan’s trade ministry, treating Toshiba as a strategic asset and compromising the interests of foreign investors. This development not only marred Toshiba’s reputation but also cast a shadow of uncertainty over foreign investments in Japanese stocks, impacting the broader stock market.
Nuclear Meltdown: Westinghouse Acquisition and the Collapse of Toshiba’s Energy Ambition
In 2016, the company grappled with the fallout from the acquisition of a nuclear power plant construction project by its U.S. unit, Westinghouse Electric, leading to a financial crisis. Westinghouse’s subsequent bankruptcy left Toshiba with a collapsed nuclear business and liabilities exceeding $6 billion. In a bid to mitigate the crisis, the company divested various businesses, including mobile phones, medical systems, and white goods. Furthermore, the sale of its chip unit, Toshiba Memory, faced delays due to disputes with partners.
Amid a landscape where companies were investing heavily in technological innovation, Toshiba found itself compelled to sell off assets to generate cash. A $5.4 billion cash injection in 2017 from overseas investors saved Toshiba from forced delisting but increased the influence of activist shareholders. This, in turn, led to prolonged internal struggles within the company, hampering its operations in batteries, chips, and nuclear and defense equipment.
JIC Steps In: A New Hope or More Uncertainty Looms?
Following debates about potential corporate restructuring, the company established a committee to explore the possibility of going private. In June 2022, the company received eight buyout proposals. Ultimately, it was confirmed earlier this year that a consortium of Japanese investors, led by the state-backed Japan Investment Corp (JIC), would acquire Toshiba for $14 billion. The specific strategies of the new owners to revive Toshiba remain unclear, although the outgoing chairman indicated a focus on high-margin digital services.
Japan Investment Corp, with a history of carving out businesses from major manufacturers such as Sony and Olympus, aims to navigate the company through its transition. Notwithstanding its success with Sony’s Vaio laptop business, the company presents a more substantial challenge due to its larger scale and the critical role some of its operations play in national security. With approximately 106,000 employees, Toshiba’s future under new ownership will be closely watched as it strives to reclaim its standing in the realm of technological innovation.
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Source(s): BBC
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