Please review the case of Toshiba as presented below and respond to ALL questions

“Toshiba’s profits fall 90% as top executive resigns”

Toshiba’s quarterly operating profit fell almost 90 per cent, as turmoil at the scandal-ridden Japanese industrial conglomerate deepened with the resignation of a top executive over improper entertainment expenses.

The disappointing results — far below analysts’ forecasts — come as Toshiba considers a $15bn buyout proposal from a consortium led by a Japanese private equity firm, in what would be the country’s largest take-private deal.

Toshiba’s chief operating officer Goro Yanase resigned after auditors found he had repeatedly submitted entertainment expenses without reporting the names of attendees, in violation of company rules. The alleged misconduct took place when he was a board member of a subsidiary in 2019, before his nomination as chief operating officer.

The company posted an operating profit of ¥5.3bn ($40.1mn) for the October-December quarter, far less than a consensus estimate of ¥38bn, according to S&P Global Market Intelligence.

Its hard-drive business was hit by a drastic weakening of demand as manufacturers and businesses curbed spending in the face of a recession. The conglomerate also recorded a ¥10.2bn impairment charge for its Toshiba TEC printing business as the subsidiary’s share price fell. Toshiba cut its full-year operating profit forecast by a quarter and now expects to post one of ¥95bn for the fiscal year through to March. It is the second downward revision of its guidance since November.

The company blamed one-off factors for its poor performance, but the abrupt resignation of the chief operating officer is another blow to its reputation. It has lurched from accounting fraud to financial crisis and a protracted battle with activist investors.

The 147-year-old enterprise last week received a final acquisition proposal from Japan Industrial Partners, which has teamed up with financial services group Orix, Chubu Electric, chipmaker Rohm and other Japanese companies. If the proposal is approved by Toshiba’s board and activist shareholders, it would conclude an eight-year saga that has brought the industrial conglomerate to the brink of collapse.

“With the aim of acting in the best interests of shareholders and other stakeholders . . . the company will conduct necessary negotiations,” said Toshiba chair Akihiro Watanabe in a statement on Tuesday.

“We feel strongly that there is an urgent need to transform the company,” he added. “We believe it is important to reach a final conclusion on the strategic alternatives of the company as soon as possible and to start working towards a new stage.”

“I don’t think there are no business opportunities for Toshiba, but [the latest earnings results and the chief operating officer’s departure] shows it is in a difficult situation,” said Masahiko Ishino, a senior analyst at advisory company Tokai Tokyo Research Institute. “It could be questionable that banks are financing the massive buyout.”

Eri Sugiura, Financial Times, 14th February 2023

Answer the following THREE questions based on the case study above.

Q 1

What are the key strategic issues that Toshibais facing from the situation depicted above?

(Total 20 marks)

Q 2

What recommendation would you make to Toshiba management in addressing ONE of the strategic issues that you have identified? Justify your recommendation with reference to business strategy literature.

(Total 40 marks)

Q 3

‘Typically 70%–90% of acquisitions are abysmal failures.’ (Martin, 2016).  Discuss Toshiba’s strategic alternatives with reference to the case.

 (Total 40 marks)

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