On December 19, 2023, a pivotal moment unfolded in Japan's corporate landscape as Toshiba, one of the nation's largest companies, faced delisting by the Tokyo Stock Exchange. This move resulted from a massive $14 billion leveraged buyout (LBO) led by the private equity group Japan Industrial Partners, marking the largest-ever leveraged buyout in Japan.
A decade earlier, a similar financial upheaval shook U.S. markets when Dell, a major player in the technology industry, underwent delisting through a $24.9 billion LBO led by its founder, Michael Dell, and Silver Lake Partners. This transaction mirrored another notable delisting that year: H.J. Heinz Company, acquired for $28 billion by Berkshire Hathaway and 3G Capital.
While Heinz operates in the food processing sector, Dell, much like Toshiba, is a conglomerate involved in diverse sectors, ranging from batteries and chips to nuclear and defense equipment. The parallels between the delisting of Toshiba and Dell in 2013 extend beyond the common thread of being financed by leveraged buyouts.
For instance, both Toshiba and Dell faced shareholder activism during their delisting. Activist funds, including Elliott and Farallon, played a pivotal role in Toshiba, pushing for changes and unlocking value. Dell, on the other hand, encountered opposition from activist investor Carl Icahn, who contested the deal, arguing that it undervalued the company. Ultimately, shareholders voted in favor of Michael Dell and Silver Lake Partners' buyout proposal.
However, the reasons for delisting differed. Toshiba endured a tumultuous eight last years marked by an accounting fraud scandal, financial crisis, asset fire sale, and conflicts with activist shareholders. Governance issues were prominent, with Toshiba characterized as having a governance structure resembling a state-owned enterprise, with a historical lack of a shareholder-focused mindset. The private equity buyout was seen as a necessary step to force restructuring and enhance efficiency.
In contrast, Dell's delisting was primarily driven by Michael Dell's ambition to privatize the company, allowing for a major restructuring away from the short-term pressure and scrutiny of public markets. As Dell’s profitability and growth had been stagnating, he sought a shift towards long-term strategies, facilitating a quicker transition from the declining PC market into enterprise solutions and services.
Regarding the Post-Delisting Outlook of Toshiba, concerns have been raised about governance in Toshiba's private hands, with speculations that the company might be split into several entities. The composition of the new board significantly differs from its last year as a public company. However, the delisting could also be promising if it follows the path of Dell’s experience.
Undeniably, Dell's story is a private equity success of significant proportions. The venture, standing out for its length and complexity, has proven to be one of the industry's most lucrative. The decision to take Dell Technologies private more than a decade ago paved the way for a series of strategic moves. Dell Technologies acquired tech conglomerate EMC for $67 billion in 2016, and the subsequent sale of EMC's premier asset, an 81 percent stake in VMware, to Broadcom for $92 billion, reaped over $14 billion in cash for Michael Dell and Silver Lake in November of this year.
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This private equity success, described by experts as one of the industry's largest gains, contrasts sharply with the hotly contested nature of the Dell buyout and the EMC takeover on Wall Street. Despite facing criticism from activist investors like Carl Icahn and settling a record $1 billion shareholder lawsuit in 2022, Dell's complex financial engineering techniques and strategic acquisitions have undeniably created substantial value.
In conclusion, the delisting of Toshiba and Dell through significant leveraged buyouts showcases the diverse challenges and strategies companies employ in navigating the complexities of public markets. While Toshiba's case sheds light on governance challenges in Japan, the Dell story emphasizes the potential for substantial returns and strategic success in the private domain.
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