Electronics giant Toshiba will split into three different companies after years of scandals, according to a press release from the Japanese company on Friday. The move comes after activist shareholders lobbied for the change following several idiotic moves, including a plan to falsify financial documents which saw the company pay out a record fine in 2015.
The three companies will include Infrastructure Service Co., which plans to hold Toshiba’s Energy Systems & Solutions, Infrastructure Systems & Solutions, Building Solutions, Digital Solutions, and Battery businesses; Device Co., which includes Toshiba’s Electronic Devices & Storage Solutions business; and Toshiba, which will hold on to the company’s ownership stake in Kioxia Holdings Corporation.
Part of Toshiba’s stated rationale for the split is an attempt to focus on becoming more nimble, especially as climate change forces companies to address the impact they’re having on the planet.
From Toshiba’s press release:
The separation will create two distinctive companies with unique business characteristics leading their respective industries in realizing carbon neutrality and infrastructure resilience (Infrastructure Service Co.), and supporting the evolution of social and IT infrastructure (Device Co.). 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. At the same time, Toshiba intends to monetize shares in Kioxia while maximizing shareholder value and return the net proceeds in full to shareholders as soon as practible to the extent that doing so does not interfere with the smooth implementation of the intended spin-off.
The split is supposed to happen in the second half of 2023, according to Toshiba, and was approved unanimously by the company’s board.
As Yahoo News notes, there have been quite a few scandals plaguing Toshiba in recent years and the business model of gigantic conglomerates has fallen out of favor. Earlier this week, U.S. company General Electric, another storied conglomerate, announced it was also breaking up into three different companies.
Last year, Toshiba repelled the activists at its annual shareholders meeting, winning a clean sweep of its own board nominees. But an independent investigation later found management had tapped government allies and worked hand in hand with public officials to sway the outcome of the voting.
The three-way split is among the most radical actions taken by a Japanese giant to address the so-called conglomerate discount. The country has historically been a place where one company manages a wide range of businesses, a strategy that has fallen out of favor in the rest of the world and is often criticized for depressing share prices and hurting innovation.
“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,” Satoshi Tsunakawa, CEO of Toshiba, said in a statement.
“Our Board and management team firmly believe that this strategic reorganization is the right step for sustainable profitable growth of each business and the best path to create additional value for our stakeholders. We are grateful for the Strategic Review Committee’s thorough evaluation and recommendation on our best path forward.”