Toshiba Corp., which is restructuring after it came to light that the electronics giant had padded its profits, faces a new crisis: around a 700 billion yen loss stemming from its U.S. unit Westinghouse Electric Co.'s takeover of another U.S. company. It is the largest loss a Japanese firm has ever suffered in connection with a corporate acquisition.
Toshiba is poised to swiftly recapitalize and seek assistance from banks to avoid falling into a capital deficit, a situation in which its debts surpass the value of its assets.
There are quite a few unclear points over why and how Toshiba suffered such a huge loss. The management should quickly determine the exact amount and clarify how the loss was generated.
Toshiba acquired Westinghouse in 2006 for more than 600 billion yen after fierce competition with Mitsubishi Heavy Industries Ltd. and other companies. It was a proactive business decision for Toshiba, based on its long-term strategy of bolstering its global nuclear power business.
However, international demand for new atomic power stations has declined since the outbreak of the Fukushima nuclear crisis in March 2011, and the profitability of Toshiba's nuclear power business has plummeted because of the need to beef up safety measures. It subsequently turned out that the value of Westinghouse was lower than anticipated, resulting in Toshiba booking a loss of some 260 billion yen.
Fresh losses were generated in connection with a U.S. nuclear power station construction company which Westinghouse had acquired at the end of 2015.
The company, bought by Westinghouse for zero dollars, later turned out to be financially troubled, incurring up to 700 billion yen in losses. Questions should be raised over how Toshiba and Westinghouse evaluated the company's assets, how the Toshiba board was briefed by Westinghouse on the deal, and how the electronics giant decided to approve the acquisition.
When Westinghouse purchased the plant construction firm, Toshiba's efforts to deal with its accounting irregularities, in which the company padded its profits by some 230 billion yen, and downsize its workforce were in their final stages. Then Toshiba President Masashi Muromachi said that Toshiba "is determined to start over and do its utmost to regain the public's trust." It is difficult to understand why such a prestigious company, whose entire group employs nearly 200,000 people, has repeatedly incurred such enormous losses.
Toshiba has sold off its home appliance and medical equipment divisions in an effort to raise funds to cover its losses and downsize its workforce. One way to bring in a lot of cash would be for Toshiba to sell off its semiconductor division. However, such a move would effectively lead to Toshiba's disbandment.
Therefore, Toshiba intends to recapitalize by splitting its semiconductor division into a subsidiary and have it go public, and ask banks to continue extending loans in a bid to overcome the crisis. The state-owned Development Bank of Japan is reportedly exploring the possibility of extending financial assistance to Toshiba considering the impact of the electronics giant's financial crisis.
Problems involving Toshiba, whose losses have come to light one after another, are deep-rooted and have damaged public confidence in its management. To gain financial assistance from banks, Toshiba must promptly clarify how the company has incurred such huge losses.