Toshiba: nuclear fallout Premium

The Japanese conglomerate’s latest crisis will not be the last

How not to reveal bad news, the Toshiba edition. The ailing Japanese conglomerate was due to disclose the extent of a writedown on its US-based nuclear business in the Tuesday lunchtime trading break, along with its nine-month earnings. Moments after the appointed hour, the company balked, saying it was not ready. Then, after revealing it had requested a month’s delay to publish results, the company released unaudited numbers just a few hours later. The shares, which had closed down 8 per cent, still do not reflect the magnitude of the crisis, compounded by Toshiba’s inept handling of its disclosures.

The nuclear write-off is substantial: at $6.3bn it takes Toshiba to a nine-month net loss of $4.4bn. Equity has been destroyed and is now a negative $1.7bn. To plug the hole, the company is courting a buyer for a stake in its chip business, whose equity might be worth about $20bn. Such is the scale of the balance sheet devastation, it says it will even consider giving up control of this, its largest profit generator. That would leave Toshiba with few businesses worth having. An unsurprising conclusion, perhaps, since it cannot dictate terms in its current distressed state.

This is not the company’s only recent transgression. In 2015 it revealed it had been cooking the books, inventing profits of $1.3bn over seven years — a figure which now looks paltry. Yet Toshiba’s $8bn market capitalisation is still above lows set by that scandal. Given the unappetising choices it faces, that sum reeks of overvaluation.

The warnings from the accounting debacle should not have been so easily dismissed. While management was replaced (and now the chairman has resigned, despite the nuclear scandal predating his tenure), the poor corporate culture that pervaded the company has caused extensive rot. The failures of disclosure during both crises underscore a sense that matters have spun out of Toshiba’s control. The company’s shares are on a watchlist for removal from Japan’s main index while it battles to show that misdeeds are behind it. After Tuesday’s events that argument looks untenable. The company’s very survival is at stake.

The Lex team is interested in hearing more from readers. Today, we’ve chosen Toshiba for discussion. Are its problems company-specific? Or are they reflective of broader flaws in Japan’s consensual style of management when cost and techology advantages erode? Please tell us what you think.

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