Weekly Japan review: Toshiba, M&A post pandemic and Olympic Games

Welcome to this blog, which will review the previous week’s news relating to Japanese business, finance, investment, the economy and other areas relevant to Crimson Phoenix’s activities.

Toshiba

The most explosive news this past week was the fresh revelation at Toshiba. A report found that its management had colluded with the Japanese government, including Prime Minister Yoshihide Suga when he was Chief Cabinet Secretary in Shinzo Abe’s administration, to put pressure on foreign shareholders to support its resolutions at a company general meeting. This claim was made in an independent report commissioned by certain Toshiba shareholders following the defeat of proposals tabled by activist investors at the company’s AGM in July 2020.

The report, compiled by lawyers, states that a certain senior Toshiba executive told colleagues that management had concluded to “let METI (the Ministry of Economy, Trade and Industry) to beat them up for a while” and that Suga, having been briefed about the situation, was supportive of Toshiba management’s attempt to force the withdrawal of activist investors’ proposals. It states that the AGM had been improperly conducted.

The report’s conclusion deepens the crisis at Toshiba. It has led to the removal of two members of Toshiba’s Audit Committee from the list of director nominees which will be voted on at this year’s AGM. Two other senior executives are leaving the company as well. The report’s findings are also a blow to the Japanese Prime Minister’s credibility as a guardian of his predecessor’s corporate governance reform. Indeed, the methodology employed by Toshiba harks back to the days of the “dark art” of political meddling in, and manipulation of, corporate groups involved in nationally sensitive industries such as nuclear power and defence.

M&A activity post pandemic

Elsewhere, it has been reported that the level of domestic and outbound acquisition activity by Japanese companies in 2021 is set to exceed that of 2020. The Financial Times quoted Carlyle Japan’s head as saying that “the pandemic was accelerating asset sales and purchases of new technology among Japanese companies that might previously have taken years to make such decisions.” The paper also says that several private equity groups believe that Japan is the most opportunity-rich country outside of the US. The Nikkei says that KKR, the US private equity fund, is looking to invest further in cloud-based software start-ups in Japan.

We expect the market for corporate control in Japan to develop further into the small to medium end of the size scale. Heirless family-founded and -owned businesses need to find solutions to their succession issues. New technologies and demographics are changing their business environment. An increasingly active M&A landscape makes the competitive pressure higher for SMEs.

Olympic Games: crunch time

Meanwhile, the IOC’s determination to plough on with the Tokyo Olympic and Paralympic Games appears undented. With just 40 days to go until the opening date, the sponsors are on the hook to pay up for an event that may provide significantly smaller returns than first expected. It would appear that while many Japanese are opposed to the timing of the Olympics, there is much greater support for hosting the event itself. The Japan Olympics Committee and Japanese government are staking their reputation on their ability to contain the spread of COVID-19 during and after the tournament. For the sake of all involved, not least the athletes who have spent years training, the organisers must make the right call.