The premium for the Japanese conglomerate may not be as high as investors had hoped, according to two sources who claim the favored bidder to acquire Toshiba has offered to pay less than the widely accepted threshold of 6,000 yen per share.
On October 7, Toshiba awarded preferred bidder status to a group of bidders led by the private equity company Japan Industrial Partners (JIP), while the conglomerate is still accepting offers from other parties, according to sources familiar with the situation, as reported by Reuters.
According to a different source, one of the terms of JIP’s bid is keeping the current management in place. This is a favorable offer for Toshiba CEO Taro Shimada, who wants to increase profit by bolstering data-related services.
One of the sources added that JIP has been asking Japanese companies including Orix Corp and Chubu Electric Power Co Inc to join the consortium and has been given a month to develop a comprehensive proposal that includes finance.
JIP’s initial offer was below 6,000 yen per share, the two sources told Reuters, putting the value of a potential tender offer at less than 2.6 trillion yen ($17.5 billion).
Toshiba shares closed 5,435 yen on Monday. They have risen about 15% this year on expectations for a buyout.
The offer price may change as a consortium led by state-backed Japan Investment Corp (JIC) is preparing a competing bid, said the sources, who declined to be identified because the matter is private.
Neither Toshiba nor JIP nor JIC will comment.
JIP and JIC joined forces to bid for Toshiba in the initial round of bidding, but later broke apart over divergent post-buyout intentions, according to sources familiar with the situation.
According to the sources, JIC has been in contact with MBK Partners and Bain Capital, two overseas firms that made it past the first round of bidding.
Investors have considered 6,000 yen to be a key threshold.
At least one international private equity company informed Toshiba’s review committee during a strategic review last year that a deal to take the conglomerate private might be done at 6,000 yen per share or more.
But since then, as the world’s monetary system has tightened, the atmosphere for leveraged buyouts has shifted. Fear of falling semiconductor demand has caused share prices in the chip sector to plunge globally, which may have an impact on the value of Toshiba’s 40.6% holding in Kioxia Holdings Corp., a company that makes flash memory chips.
According to private equity sources, banks in Japan are now hesitant to offer terms for financing leveraged buyouts as a result of the court-mandated rehabilitation of auto parts supplier Marelli Holdings Co Ltd, which is owned by U.S. private equity company KKR & Co Inc (KKR.N).
Still, with its ultra easy policy, Japan has a relatively stable investment environment compared with the United States, they said. Japan has seen some large buyouts in recent months despite market headwind this year, including Bain Capital’s $3.1 billion deal for Olympus Corp’s (7733.T) microscope unit.
