Toshiba Corporation has announced plans to separate into three standalone companies.
The Infrastructure Service company will consist of Toshiba’s energy systems, infrastructure systems, building solutions, digital solutions and battery businesses.
Hard disk drives and its semiconductor business will form the backbone of another company known as the Device Company. The third company will manage Toshiba’s stake in flash-memory chip company Kioxia Holdings and other assets.
The announcement follows a five-month strategic review.
The decision will need to get through an extraordinary general meeting due to be held in March.
"After much discussion, we reached the conclusion that this strategic reorganisation was the best option," Toshiba’s CEO, Satoshi Tsunakawa told a news conference.
Founded in 1875, Toshiba has been under intense pressure from shareholders which led to the review.
Toshiba said it will complete the reorganisation by 2023.
“The separation will create two distinctive companies with unique business characteristics leading their respective industries in realizing carbon neutrality and infrastructure resilience,” the company said in a statement.
“The separation allows each business to significantly increase its focus and facilitate more agile decision-making and leaner cost structures. As such, both companies will be much better positioned to capitalize on their distinct market positions, priorities and growth drivers to deliver sustainable profitable growth and enhanced shareholder value.
“Toshiba’s management team and board of directors are confident that the intended separation into three standalone companies is the best path to enhance shareholder value.”
The CEO said Toshiba has constantly evolved to stay ahead of the times throughout its 140 year history.
“We are convinced that the business separation is attractive and compelling: it will unlock immense value by removing complexity, it enables the businesses to have much more focused management, facilitating agile decision making, and the separation naturally enhances choices for shareholders,” he said.
The reorganisation may not have the support of activist investors who want the company to go private.
The conglomerate has lurched from one crisis to another since an accounting scandal in 2015.
Toshiba believes the announcement will improve governance as each newly created business will be led by a separate board of directors and management team.
“Infrastructure Service Co. and Device Co. will be spun off from Toshiba and company stock of each of the two new companies will be distributed to Toshiba shareholders at the time of the spin-off record date,” the statement said.
“The reorganization is expected to be completed in the second half of fiscal year 2023, subject to the completion of necessary procedures, including the approval of Toshiba’s general shareholder meeting and fulfillment of all review requirements with the relevant authorities.
“However, we will make an effort to speed up the process to the extent feasible. The financial results of the businesses to be separated must be audited for a two-year period, beginning with FY2021 results, before the spin-offs can be completed.”
The Strategic Review Committee will continue to oversee the preparation of the separation plan until Toshiba shareholders vote on it at the proposed extraordinary general meeting of shareholders (EGM) expected in the first quarter of the next calendar year, at which point it is expected that a board Steering Committee will be formed.
Toshiba has 120,000 employees worldwide and secured annual sales of 3.1 trillion yen (US$27.5 billion) in fiscal year 2020.