The massive Canon acquisition of Toshiba Medical Systems from its troubled former parent company is done, Canon Chairman and CEO Fujio Mitarai announced yesterday in a company statement.
Canon had “concluded a shares and other securities transfer agreement with Toshiba Corporation on March 17, 2016," using a maneuver that, considering subsequent warnings from Japan regulators, is likely to remain unique.
The unit went to Canon for over $6 billion, as HCB News reported in March
The unit was sold to help offset damages from Toshiba's $1.3 billion accounting scandal that surfaced in July involving overstated profits and false bookkeeping going back as far as 2009.
This week's resolution of the deal is the result of “clearance from competition regulatory authorities,” stated the company.
When the deal happened in March, the unique maneuver employed raised objections from jilted suitors
and regulators alike.
The Canon-Toshiba deal got a regulatory nod of approval in May, but also earned a stiff warning from regulators at the time.
“We decided to make an announcement about the warning to let everyone know that it is not acceptable, so the same method won’t be used in the future,” Takeshi Shinagawa, director of the Fair Trade Commission's (FTC) mergers-and-acquisitions division, stressed at a news conference.
He warned that the novel maneuver, which made use of warrants, was possibly in violation of the law – despite the fact that no rule was broken explicitly.
Toshiba used a method to dodge potential legal entanglements in which it sold Canon an entity known as "MS Holding", a "special-purpose vehicle with but $300 in capital" formed solely to do this deal. The ploy took voting control from Toshiba Medical and gave it to MS Holding. This vehicle had only three shareholders — the former head of trading house Sumitomo Corporation, a lawyer, and an accountant. Each owned one-third of the entity.
Complaints poured in from other jilted Toshiba suitors. One, losing bidder Fujifilm Holdings, took its outrage public, noting that it "would make a mockery of the law."
That firm went so far as to state that "it is a method that companies like ours, with open, fair and clear policies, could never consider."
Fujifilm was displeased with the FTC decision to let the Canon-Toshiba deal go through. “We demand an explanation for why the scheme was allowed this time when it is not going to be accepted in the future,” the firm said at the time. “It was an unfair fight for us.”
The tricky maneuver was basically legal but unprincipled according to one expert. "The scheme is slipping through a set of accounting rules regarding special-purpose vehicles," Yuji Hosono, a certified public accountant experienced in corporate auditing, told Reuters when the deal first happened, adding that "it's compliant, but goes against the principles of accounting."
Japanese law requires that any such deal, which could lead to antitrust problems, be reported to the FTC beforehand. Using warrants effectively got around that requirement.
Canon said it would take the warning into account in the future, while admitted no wrong. “We will firmly follow the law while improving transparency of our business,” the company stated.
The Japan FTC remained unamused. "Canon thought the deal would be approved without problem if they used this method," said the commission's Shinagawa. "This method should not be repeated by any companies, and if they do in the future, they could get a red light."
The deal made sense to Canon, according to the company, as part of its five-year initiative, launched in 2016.
Calling the move part of a “grand strategic transformation” it stated that it intends to “cultivate its health care business within the safety and security sector as a next-generation pillar of growth.”
It described Toshiba Medical as “one of the leading global companies in the medical equipment industry,” noting that “within the field of medical X-ray computed tomography systems in particular, Toshiba Medical is the overwhelming market share leader in Japan and has been steadily increasing its global market share.”
Canon also stressed Toshiba Medical's strength in diagnostic X-ray systems, magnetic resonance imaging systems, diagnostic ultrasound systems and diagnostic nuclear medicine systems.”