TOKYO Reuters -- Toshiba Corp is facing tough decisions as it seeks shareholder support for its plan to split into three companies, with some investors worried that it might set a preliminary bar for approval lower than they would like.
The Japanese conglomerate outlined a plan last month that runs counter to calls for Toshiba to be taken private and partly designed to encourage activist shareholders to sell their stakes, according to sources.
3 D Investment Partners, which owns more than 7% of Toshiba, publicly said last month it opposes the plan and called for the conglomerate to solicit offers from potential buyers. People with knowledge of the matter have told Reuters that at least several other large shareholders are opposing the matter.
In January-March, Toshiba proposed an extraordinary general meeting EGM in the January-March quarter to gauge shareholder support. If it wins support, the company would proceed with preparations for the breakup it wants to complete by March 2024. A shareholder vote would be required by two-thirds in favor of the breakup and would require two-thirds in favor for it to be approved.
Much about the EGM is unclear, including how Toshiba will word any motions and when it will take place. Toshiba would be allowed to set the level required for shareholder approval because the EGM would not be binding under Japanese law.
A Toshiba spokeswoman said details of the EGM have yet to be decided, including the level of approval.
Some shareholders said they would be upset if Toshiba decides to only need a simple majority at the EGM.
If the company will need two-thirds two years later, they should set the same bar, said a source at a major hedge fund shareholder who was not authorized to speak to media and declined to be identified.
Activists account for more than 30% of Toshiba's shareholders - a result of a desperate capital raising in 2017 - and setting the EGM's bar at two-thirds for approval could be hard to meet.
It's possible that Toshiba will be able to convince doubtful investors to come round to its point of view by setting it lower at a simple majority. A longer run-up to a shareholder vote requiring two-thirds of the vote in favor could test the patience of some investors who might pull out of Toshiba before that.
One alternative to seeking a direct vote on support for the breakup plan that has been floated by Toshiba's board is to ask shareholders at the EGM to vote on the reappointment of its board directors, three sources familiar with the matter said.
The sources said that a majority of the votes in the board and the breakup plan would be taken as a vote of confidence in the board and by extension of the breakup plan.
One of the sources said that the chance of the company choosing that option was low.
It risks creating a power vacuum if board directors are voted down, the source said.
Toshiba has a tense relationship with its activist shareholders. An explosive shareholder-commissioned investigation concluded that the company had colluded with Japan's trade ministry to block investors from gaining influence at the shareholders meeting last year.
The plan, borne out of a strategic review, calls for Toshiba's energy and infrastructure divisions to be one company while its hard disk drives and power semiconductor businesses will be another. A third will manage Toshiba's stake in the flash-memory chip company Kioxia.
Toshiba has walked away from potential private equity buyout offers, advanced talks for a minority stake in Canada's Brookfield, sources said.