• Bloomberg


Just days after Hoya Corp. made a hostile takeover bid for one of Toshiba Corp.’s publicly traded units — an extremely rare move in Japan — the industrial giant is responding with equally unusual bluntness.

“Basically, I’m not selling,” Toshiba Chief Executive Officer and Chairman Nobuaki Kurumatani said in an interview. “Price is not the issue — it’s life or death for” NuFlare Technology Inc., the company at the center of the tug-of-war, said Kurumatani, suggesting that the subsidiary wouldn’t be able to survive outside of Toshiba’s group.

Hoya offered to spend as much as ¥148 billion ($1.35 billion) for NuFlare, seeking a minimum of 66.7 percent of the chip-equipment manufacturer. Its tender offer of ¥12,900 a share trumped Toshiba’s own earlier bid to buy out public shareholders at ¥11,900 a share. Hoya said it hadn’t discussed the bid with NuFlare and Toshiba for fear of the information leaking out and driving up the price.

As far as takeover bids go, this one has limited scope for hostilities. Toshiba and its affiliates own more than half of NuFlare’s shares. So for Hoya’s bid to succeed, the company would have to find a way to change Kurumatani’s mind.

Toshiba’s offer to buy out other shareholders expires Dec. 25. NuFlare shares closed at ¥13,520 on Thursday, higher than both Toshiba and Hoya’s bids, indicating that investors anticipate more bidding ahead.

“I can’t see a situation where this sale would make rational sense to us,” the Toshiba CEO said. “Giving that company away would destroy its value.”

NuFlare dominates the market for mask writers, which are used for imprinting patterns on glass squares slightly bigger than a CD case that act as a stencil for semiconductor designs. But the company has been losing share to a higher-spec machine developed jointly by a unit of Intel Corp. and Jeol Ltd. The threat to NuFlare is substantial: If it doesn’t come up with a competitive response fast, it could lose as much as half of its market share, according to London-based tech equity researcher Pelham Smithers.

Hoya is one of only two companies in the world — the other being Japanese compatriot AGC Inc. — capable of making the blank masks used in next-generation extreme ultraviolet lithography. That privileged position could help it ameliorate the existential risk to NuFlare.

Kurumatani dismissed any concerns about NuFlare’s future. He also pointed out that while NuFlare has 630 employees, the company relies on about 100 engineers dispatched from the Toshiba group. Without those technologists, NuFlare would not be able to function normally, he said.

“They have high market share, high profits and no problems at all,” Kurumatani said. “Selling it does nothing for our shareholders.”

Until recently, Toshiba might have jumped at the opportunity. The former giant of Japan’s economy has stumbled repeatedly in the past few years, paying a record fine in an accounting scandal and then losing billions on a foray into nuclear power. To help pay for the losses, Toshiba sold its medical unit to Canon Inc., its home appliance business to China’s Midea Group Co. and a chunk of its crown-jewel memory chip business to a group led by Bain Capital.

When Kurumatani took the helm in April 2018, the former banker from one of Toshiba’s main creditors had the unenviable job of rebooting growth at the 143-year-old conglomerate without the key engines of semiconductors and nuclear power. He also inherited a company with a large contingent of activist shareholders eager to see a return on their investment. A total of about 60 funds, including David Einhorn’s Greenlight Capital, Daniel Loeb’s Third Point and Effissimo Capital Management Pte. Ltd. came in as part of a new share issuance in 2017. Their eagerness for a return may be one lever Hoya could potentially exploit.

In May 2018, Toshiba shareholder Argyle Street Management Ltd. urged the company to buy $10 billion worth of its own stock. A few weeks later, the company announced a $6.3 billion buyback — its first ever. In October of the same year, fellow investor King Street Capital Management said Toshiba should repurchase $10 billion more. While the size of Argyle’s stake is unknown, King Street owns slightly less than 3 percent. Effissimo is Toshiba’s biggest shareholder with 16.2 percent.

Complicating matters is the participation of Yoshiaki Murakami, one of the country’s highest-profile activist investors. Minami Aoyama Fudosan, a fund linked to Murakami, earlier this month reported it had a 6.22 percent stake in NuFlare and said it may give advice or make proposals to management. Murakami is considered one of the pioneers in Japan’s battle for shareholder rights and he put forward the first hostile takeover bid by an investor in the country. In 2007 he was convicted for insider trading and sentenced to two years in prison, which was suspended on appeal.

At the time of the interview Wednesday, Kurumatani said he hadn’t yet spoken with shareholders about Hoya’s offer, but he didn’t foresee outside pressure playing a role in his decision because the amount involved is too small for activists to “get excited about.” Just last week, he visited Toshiba shareholders in London and left feeling that the investors were on board with his plan for the company.

“Not one of them asked about buybacks,” Kurumatani said.

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