Toshiba $5 billion stock issue results in huge dilution but delisting risk removed

Asian Stock Markets

Toshiba Corp’s (6502.T) plan to raise some $5.4 billion (4.1 billion pounds) through a sale of new shares will help it avoid a delisting, but will also see more than 30 overseas investors, including activist funds, own 35 percent of the embattled conglomerate. 

The move, decided at a board meeting on Sunday, will allow Toshiba to pay off billions of dollars in liabilities at its bankrupt U.S. nuclear power business, Westinghouse. That in turn gives it the funds to return to positive net worth by the end of the financial year in March, as an $18 billion sale of its prized memory chip unit is unlikely to close before then.

The issue of 2.28 billion new shares at 262.8 yen per share (1.8 pounds), a 10 percent discount to Friday’s close, will result in a massive 54 percent dilution in earnings per share.

Toshiba’s shares were, however, down just 5 percent in early afternoon trade as the delisting risk was removed and as the capital raising had been expected. The stock was last trading at 277 yen - a level above the sale price.

Third Point LLC, Oasis Management Company and Cerberus Capital Management were among the more than 30 investors which invested through some 60 funds.

Singapore-based fund Effissimo Capital Management, established by former colleagues of Japan’s best-known activist investor, Yoshiaki Murakami, will become the largest shareholder in Toshiba with an 11.34 percent stake.

Payments for the new investment are due to be completed on Dec. 5.

Toshiba also confirmed that it is looking at selling Westinghouse assets.

Private equity firms Blackstone Group LP (BX.N) and Apollo Global Management LLC (APO.N) have teamed up to bid for the business while Cerberus Capital Management LP was in talks with U.S. nuclear power plant component provider BWX Technologies Inc (BWXT.N) about submitting a joint bid, the sources said at the time.

Toshiba had initially planned to use funds from the sale of its chip unit to cover its Westinghouse liabilities, but a highly competitive and contentious auction process led to delays in deciding on the buyer and has meant that Toshiba may not obtain the necessary anti-trust clearance by the end of March.

The chip deal still faces legal challenges from its chip joint venture partner Western Digital (WDC.O), which argues no deal can proceed without its consent and has sought an injunction through an international arbitration court.

Toshiba is demanding that Western Digital drop the litigation as a condition over a coming round of a joint investment in Toshiba’s new flash-memory chip production line in Yokkaichi, Japan.

The two companies held talks in the United States last week for settlements, but have yet to agree on details.