Toshiba is to separate into three standalone companies.

The Infrastructure Service company will consist of Toshiba’s Energy Systems & Solutions, Infrastructure Systems & Solutions, Building Solutions, Digital Solutions and Battery businesses, while the Device Co will be the Electronic Devices & Storage Solutions business. Toshiba will remain as a holding company with the shares in Kioxia Holdings Corporation (KHC) and Toshiba Tec Corporation.

The separation, agreed by the board, allows each business to significantly increase its focus and facilitate more agile decision-making and leaner cost structures in the face of a takeover bid from private equity. At the same time, Toshiba intends to sell its shares in Kioxia and return the net proceeds to shareholders as soon as practical without interfering with the spin-off.

This is the first such restructuring of a company of Toshiba’s size in Japan and comes after several years of scandals and a takeover bid by CVC. The plan follows a review of a wide range of strategic options by the Board’s Strategic Review Committee with five Independent Outside Directors.

“Over our more than 140 year history, Toshiba has constantly evolved to stay ahead of the times. Today’s announcement is no different,” said Satoshi Tsunakawa, Interim Chairperson, President and Chief Executive Officer of Toshiba. “In order to enhance our competitive positioning, each business now needs greater flexibility to address its own market opportunities and challenges. We are convinced that the business separation is attractive and compelling: it will unlock immense value by removing complexity, it enables the businesses to have much more focused management, facilitating agile decision making, and the separation naturally enhances choices for shareholders.

“Our Board and management team firmly believe that this strategic reorganization is the right step for sustainable profitable growth of each business and the best path to create additional value for our stakeholders. We are grateful for the Strategic Review Committee’s thorough evaluation and recommendation on our best path forward,” he said.

“The SRC recommended to the Board that separating the Company into focused businesses is the best path forward for Toshiba and its shareholders following a thorough evaluation of value-enhancing options over nearly five months,” said Paul Brough, Independent Director and Chairperson of the Strategic Review Committee.

The Infrastructure Service Co will have sales of net sales of ¥2.090 trillion (US$18bn) in 2021 and includes power generation, transmission and distribution, renewable energy, energy management, systems solutions for public infrastructure, railways and industry, building energy-saving solutions, and IT solutions for government agencies and private companies. The spin out will allow it to play a leading role in driving the transition to renewable energy to meet ambitious global carbon neutrality goals and advancing infrastructure resilience.

This is expected to grow at 3.3 percent a year to ¥2.230 trillion by 2023 with margins improving from 5.1 percent to 5.2 percent over the same period, and higher after the separation.

The Electronic Devices & Storage Solutions business will have sales of ¥870bn ($7.6bn) with power semiconductors, optical semiconductors, analog integrated circuits, high-capacity hard disk drives for data centres and semiconductor manufacturing equipment. The power semiconductor business is expected to grow 13 percent a year to ¥120bn by 2023.

The Infrastructure Service Co. and Device Co. will be spun off from Toshiba and company stock of each of the two new companies will be distributed to Toshiba shareholders at the time of the spin-off by the second half of 2023 after the shareholder and regulatory approvals.

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