HONG KONG (Reuters Breakingviews) – The reason for Kioxia’s decision to pull its $3.2 billion initial public offering on the eve of pricing depends on who you ask. The world’s second largest maker of flash memory chips said it was down to market volatility and pandemic uncertainties. Analysts highlighted the punchy valuation sought. Others pointed to the problems of its sales to Huawei, battered by U.S.-China trade tensions. Whatever the reason, the biggest loser is Japan’s Toshiba, which needed a pick-me-up.
The conglomerate holds 40% of the shares in Kioxia, known as Toshiba Memory until its parent was forced to spin it out in a 2018 scramble for survival. A consortium headed by Boston buyout shop Bain owns most of the rest. Toshiba’s shares fell 3% on Monday and have shed a fifth of their value since Kioxia won approval to list in Tokyo a month ago. Toshiba’s market capitalisation is languishing below $12 billion, or a mere 9 times its expected earnings.
A well-received IPO would have reassured investors that Toshiba was making progress with its challenges, from its governance to restructuring. Last month 43% of shareholders supported adding Singapore-based activist Effissimo Capital Management to the board while Chief Executive Nobuaki Kurumatani won his reelection with 58% support, well short of a robust endorsement. A botched shareholder meeting, while not Toshiba’s fault, has not helped perceptions.
Restructuring stories generate initial excitement that can fizzle amid the details. It doesn’t help either that the scandal-plagued company is focused on industries whose long lead-times make it harder to assess any change. Key deals that may have sparked interest, such as a speculated buyout of its Toshiba Tec subsidiary – or a sale – haven’t materialised either.
Shares should rally if Toshiba wins re-entry into the closely-tracked Tokyo Stock Exchange’s first section – confirmation is expected shortly. Toshiba stood to double the book value of the remainder of its holding in the chipmaker after pocketing up to $1.4 billion from selling shares. It needs this sort of simple positive story to power its turnaround and to keep activists off its back. The short-circuit of its chip IPO isn’t going to help.
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