Toshiba bidding war looms as KKR plans to beat CVC’s $20bn offer

KKR is planning to outbid its rival CVC with a buyout offer in excess of $20bn for Toshiba as board members of the Japanese conglomerate prepare to launch a coup to oust the chief executive, according to three people familiar with the matter.

The prospect of a bidding war between rival private equity funds presents Japan with the possibility that the ownership of one of its most famous industrial names could change hands in the country’s biggest ever leveraged buyout deal

At least two of Toshiba’s biggest shareholders have called upon the Toshiba board to seriously consider any bids from private equity-led consortiums, which would be likely to include a significant Japanese presence to satisfy regulatory sensitivity over a company deeply involved in the nuclear and defence industries.

A Toshiba board meeting on Wednesday is expected to debate a proposal from one of its members that Nobuaki Kurumatani resign immediately as head of a company that he has led since it emerged from financial crisis in 2018. Toshiba declined to comment on the proposal. 

People close to the company, whose largest investors include some of the region’s biggest activist funds, said that Toshiba’s senior management had been thrown into “civil war” by the emergence of a preliminary buyout approach last week from the European private equity group CVC — a company for which Kurumatani previously worked as head of Japan’s operations.

But the stakes are about to be raised, with other groups including Brookfield and KKR poised to submit formal proposals of their own, and as CVC prepares to supply more detail on how it would structure a bid on this scale. 

Even before CVC submitted its proposal last week, there were signs of growing internal division, with some factions within Toshiba unhappy with the way Kurumatani has dealt with its activist shareholders and the changes he has implemented since taking over in 2018. 

In the company’s annual shareholder meeting last year, Kurumatani secured only a 57 per cent support rate for his re-election, and earlier this year his efforts to defeat a shareholder-led proposal failed at an investor vote.

Clashes within Toshiba come as people close to CVC said the Luxembourg-based buyout fund was willing to give majority control of Toshiba to domestic investors to make its $20bn bid acceptable to the Japanese government.

“There is no strong preference for majority control,” said one person close to CVC. “The proposal can be adjusted to its best shape in consultation with the government.” 

While most private equity firms prefer to take majority control of companies they are buying, the CVC deal could be structured in a similar way to when a consortium led by US private equity group Bain Capital acquired Toshiba’s chip unit Kioxia in 2018. In that case, Bain held a 49.9 per cent voting stake in Kioxia, while Toshiba and optical products maker Hoya together held the remaining 50.1 per cent. 

CVC has told Toshiba that it plans to form a consortium, but it has not made clear who its co-investors will be. People close to the fund said it was open to working with investment funds backed by the Japanese government, such as Japan Investment Corporation, to receive regulatory clearance.

CVC, KKR and Brookfield, which acquired Westinghouse from Toshiba in 2018 after the US nuclear business filed for bankruptcy protection, declined to comment.

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