When The Chips Are Down

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What's going on?

Shares of Japanese electronics whiz Toshiba rose 3% on Tuesday after the company said its confident itll be able to cash in its memory chips business and pay out part of the $18 billion windfall to shareholders (tweet this). ?????!

What does this mean?

In September, Toshiba agreed to sell its memory chips segment (which are used in iPhones) widely seen as the jewel in the conglomerates crown in a bid to stave off bankruptcy following an acquisition of a US nuclear company that went awry. Months later, Toshiba was still waiting for the go-ahead from regulators and that made investors nervous, because if the deal got held up it couldve spelled curtains for the maker of the worlds first laptop computer.


But Toshiba is no longer as cash-strapped as it was, thanks to a $5 billion new share issue in November. In a process similar to an Initial Public Offering, Toshiba asked existing and new investors for a cash injection in exchange for new shares created in the company. But because of its precarious position, it offered these investors a significant discount to the market price.

Why should I care?

For markets: Toshibas determined to cash in its chips.


If the sale isnt approved, Toshiba may seek other buyers for its chips business or cash it in on the stock market. Either way, the company plans to use the money it raises to invest in growth elsewhere in its business as well as return cash to shareholders via oh-so-popular buybacks. The companys commitment to a payout had investors betting on green, sending the stock soaring.



The bigger picture: Capital raises can help raise prospects, too.


When companies call on investors for more money, its not always a good thing especially when theyre in well-publicized dire straits. However, investors who answer the call may benefit from a restructured and refined company, which could be in a better position to generate value for shareholders over the long term.

Originally posted as part of the Finimize daily email.

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