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Toshiba Faces Delisting Risk After Missing Earnings Deadline

At the center of Toshiba’s challenges is U.S. nuclear unit Westinghouse Electric, which could be written down by 712.5 billion yen (US$6.2 billion) due to cost overruns and related litigation in the U.S.

Toshiba Corp. (IW 1000/68) will miss its second deadline to report third-quarter earnings, delivering another blow to investor confidence and moving a step closer to being delisted from the Tokyo Stock Exchange.

The company applied for an extension until April 11, citing the need for more time to complete an auditor review of the results for the period ended Dec. 31, it said in a statement Tuesday. If the application is rejected, the company has an eight-day period until March 27 to submit earnings to the TSE or face delisting. Toshiba shares fell as much as 8.8% during morning trading, the biggest intraday drop in almost three weeks.

At the center of Toshiba’s challenges is U.S. nuclear unit Westinghouse Electric, which could be written down by 712.5 billion yen (US$6.2 billion) due to cost overruns and related litigation in the U.S. Toshiba was due to report final figures on Tuesday, but said it needed more time to examine reports of “inappropriate pressure” internally to push through the acquisition of a U.S. construction firm specializing in building atomic plants. As a result, Toshiba hasn’t been able to get its auditors to sign off on the earnings results.

“Today, the shares are dropping because of increased concerns over delisting,” said Kazunori Ito, an analyst at Morningstar Investment Services. “For many institutional investors, Toshiba’s stock has become untouchable.”

Toshiba said in Tuesday’s statement that its auditor doesn’t think the probe into Westinghouse would have a major impact, or that it would have to revise its preliminary earnings statement. A news conference with President Satoshi Tsunakawa is scheduled for 4 p.m. in Tokyo later on Tuesday.

Toshiba is reeling from the multibillion-dollar writedown of its nuclear power business, with the company considering the sale of a majority stake in its prized memory chip business to help restore its finances. Westinghouse appears to be assembling a team of lawyers and advisers. Westinghouse has hired PJT Partners Inc. to help advise the U.S. nuclear plant developer to restructure its business, people with knowledge of the matter have said.

In its statement, Toshiba said it has hired two law firms to investigate allegations that senior managers inappropriately pushed for a deal at Westinghouse and whether that had an impact on financial statements. Based on the investigation, Toshiba’s audit committee concluded “there were facts evidencing undue management pressure, etc. from certain senior managers, and necessary improvement measures will be implemented.”

Missing Deadlines is Not New

Toshiba has missed financial filing deadlines before. The company pushed back its earnings announcement twice amid an accounting scandal in 2015, delaying the release by about four months. In theory, there is no limit on how many times the company can request an extension.

The Tokyo Stock Exchange kept Toshiba on its list of securities on alert in a December announcement, after originally being included for overstating profits from 2008 through 2014. The company is due to file a report detailing plans to improve internal controls to the bourse on March 15. If deemed insufficient, the company will face delisting.

Even if Toshiba clears these hurdles, there is a longer-term threat to stakeholders. The nuclear business writedown has pushed Toshiba’s liabilities beyond its level of assets. If the company can’t reverse the situation by the end of the fiscal year in March, it could face demotion to the second section of the Tokyo Stock Exchange. In turn, that would force an automatic selloff by some index funds.

Toshiba has put up for sale a significant stake in its flash memory operations and is considering other ways of raising cash. The company has sent letters soliciting offers for the chip business, seeking bids that value it at about 1.5 trillion yen, and expects replies by the end of the month, people familiar with the matter have said. Potential bidders that have expressed interest in the chip unit include Korea’s SK Hynix Inc., Taiwan’s Foxconn Technology Group, Western Digital Corp. and Micron Technology Inc., the people said. Among the financial bidders are Bain Capital, Silver Lake Partners and KKR & Co., the people said.

“The shares will be largely moved by two things, whether the company can limit losses in the nuclear business and the prospects for delisting,” Morningstar’s Ito said. “The stock is reacting to news flow and moving independent of fundamentals at this point.”

By Pavel Alpeyev and Takako Taniguchi

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