What's going on?
Private equity firm CVC Capital made a $20 billion offer to buy Japanese conglomerate Toshiba on Wednesday, in what would be the country’s biggest leveraged buyout in history.
What does this mean?
In a leveraged buyout, a private equity firm – Europe’s CVC, in this case – borrows money to buy a business, typically hoping to improve its operations and sell for a profit later on. And given that global investors see Japanese conglomerates as particularly inefficient, it’s a strategy that could work out well for Toshiba and its shareholders.
Toshiba’s shares surged 18% to a four-year high on the news of CVS’s offer, but it’s fair to say those investors might be getting ahead of themselves. The government has to sign off on any takeover bids made by foreign private equity firms, and considering Toshiba’s in charge of the country’s nuclear power plants, this one’s going to be under even more scrutiny…
Why should I care?
The bigger picture: Private equity firms aren’t through with Japan yet.
Private equity firms see Japan as one of the most target-rich markets in the world, and it shows: they’ve announced $15 billion worth of buyout deals focused on Japanese firms in the last twelve months, according to Bloomberg. This Toshiba takeover would be CVC’s second major deal in the country this year alone, after it agreed to buy Shiseido’s personal care business for $1.5 billion in February.
For markets: Welcome to the Land of Rising Activism.
Activist investors have increasingly been flexing their muscles in Japan over the last few years, pushing management teams to make reforms that’ll give shareholders more bang for their buck. That hasn’t gone unnoticed by Toshiba: the company – which was forced to issue $5.3 billion of new shares after a brush with bankruptcy in 2017 – is heavily owned by foreign activist funds, which just won a landmark vote to investigate the company’s management team.