Toshiba Shareholder Payday Still Has One More Hurdle: Tokyo

After resisting demands from its shareholders for years, Toshiba last month said it would solicit buyout offers from potential investors, most likely private-equity funds. Toshiba’s shareholders voted down the company’s alternative proposal to split itself into two in March. The firm expects to complete the evaluation of nonbinding bids for the company before its annual general meeting in June. Toshiba’s share price has gained 15% this year, outperforming the broader Japanese market.

There would be no lack of suitors. Japanese broadcaster NHK reported Friday that there are already more than 10 funds that are interested, including some domestic ones. Bain Capital said in March that it is studying a possible bid. A deal could potentially be the largest-ever private equity-led buyout in Japan.

But a deal wouldn’t be straightforward. Toshiba’s nuclear-power and defense businesses pose legitimate national-security concerns if they fall into foreign hands. There are potential solutions, like separating out sensitive businesses and introducing domestic, perhaps even state-affiliated, investors. When Toshiba sold its memory-chip unit to a consortium led by Bain Capital in 2018, the deal was structured to make sure Japanese investors control the majority of voting rights.

So the challenge for potential buyers will be to make a proposal that satisfies both Toshiba’s activist investors and Tokyo. According to an independent investigation commissioned by Toshiba’s shareholders, Japanese officials colluded with the company’s management to try to influence the shareholders’ vote in 2020 against foreign investors.

Toshiba’s long-running governance saga may finally be coming to an end. Whether that ending is happy or not is still up in the air—and probably depends on the Japanese government as much as anything else.

Write to Jacky Wong at jacky.wong@wsj.com