Toshiba gets outsider CEO to lead revamp

Bloomberg

Toshiba Corp. is bringing in an outsider to lead the Japanese electronics maker battered by accounting scandals, record losses and divestment of businesses.
Nobuaki Kurumatani, 60, representative director of CVC Capital Partners Ltd. in Japan and former vice president at Sumitomo Mitsui Banking Corp., will become chief executive officer and chairman of Toshiba Corp., the Tokyo-based manufacturer said in a statement Wednesday. Satoshi Tsunakawa will step down as CEO and become chief operating officer. Their roles will be effective from April 1.
Toshiba is in the process of selling the crown-jewel memory unit to a consortium led by Bain Capital to avoid delisting after billions of dollars of losses in its nuclear energy operations. The CEO, a former banker from one of Toshiba’s main creditors, will face the challenge of restoring confidence in the 143-year-old conglomerate and finding ways to achieve growth without the key engines of semiconductors and nuclear power.
“This is good news from the point of view of debt investors, because someone from a banking background is likely to be more cautious when it comes to making bold investments,” said Yoshihiro Nakatani, a senior fund manager at Asahi Life Asset Management Co.
As part of its revamp, Toshiba said it’s no longer including the chip business as a continuing operation in financial results for the third quarter, resulting in an operating loss of $1.7 billion for the three months ended December 31. The change in reporting is also being reflected in a revised outlook for the entire business.
Toshiba now forecasts full-year net income of 520 billion yen instead of its previous outlook for a 110 billion yen loss, after selling claims against the nuclear business and factoring in associated tax changes. The revenue prediction was also revised down, to 3.9 trillion yen from 4.97 trillion yen.
Toshiba also removed a reference to not being able to continue as a going concern, which had appeared in April, citing three factors: Increased likelihood of completing the chip-unit sale within a year The sale of 600 billion yen worth of shares to investors The sale of claims in its Westinghouse US nuclear unit. While removal of chip division from the results and divestment timetable are signs that the sale is on track, there are other factors that could delay, or even change the terms of the deal.
China has yet to grant approval for the chip deal and regulators are unlikely to sign off before the contract’s March 31 deadline, according to people familiar with the matter. If the deal doesn’t close by then, Toshiba has the right to terminate. That could give Toshiba, now on more stable footing, the opportunity to negotiate a better deal than the 2 trillion yen sale price from September, which may undervalue the business by several billion dollars.
The storage and electronic devices division, which in addition to memory also includes hard disk drives and logic chips, reported 132.2 billion yen in profit last quarter. The company forecast 490 billion yen full-year profit in the unit, compared with 440 billion yen total for the entire group — before reclassifying the chips business as a non-operating unit.
Kurumatani, who spent his entire career in banking, will have to guide Toshiba through the lingering uncertainty. At the very least, however, there’s less of a risk of being delisting from the Tokyo Stock Exchange, thanks to the stock sale and financial clean-up of the nuclear operations.
Toshiba’s appointment of an outsider, only the second in the past 50 years, to top leadership is unusual for a conglomerate where executives typically spend decades working their way to the top. A graduate of the University of Tokyo, Kurumatani has also been on Sharp Corp.’s board since June.

“This makes it easier to expect bank support for Toshiba in the future,” Nakatani said. “The lenders are facing a lot of uncertainty and you could imagine them wanting to have a better handle on what will happen next.”
Kurumadani’s Sumitomo Mitsui and Mizuho Financial Group Inc., Toshiba’s main banks, played a key role in negotiating the sale of the chip business. The banks also pledged 600 billion yen in loans to the resulting entity provided the sale gets China’s approval. Both Tsunakawa and Kurumatani said pressure from the lenders wasn’t a factor in the management changes.
Tsunakawa, Toshiba veteran of almost forty years, took over the leadership in June 2016 after an accounting scandal claimed the jobs of three presidents, led to record losses and forced the company to sell assets. Half a year later, Toshiba discovered that construction delays and cost overruns at four atomic reactors in the U.S. had led to billions of dollars in additional losses. To pay its debt, Tsunakawa had to put its most profitable business, the chip unit, on the auction block.
And the accounting headaches aren’t over: Toshiba disclosed that it found that workers at Toshiba Tec’s overseas unit inflated profit by 4.7 million euros ($5.8 million).
At Wednesday’s briefing Kurumatani outlined three major challenges ahead: repairing the balance sheet, re-evaluating the business portfolio and following through with governance reforms. The incoming CEO said his task would be to revive Toshiba’s spirit of technological and entrepreneurial innovation, while admitting he faces a “difficult job.’’