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Facing massive write-downs over U.S. investment, Toshiba to spin off its cash-cow chip business

Kyodo

As it faces massive write-downs in its nuclear power plant business, Toshiba Corp. said Friday that it will spin off its cash-cow chip business at the end of March.

The conglomerate said its flash memory operation will be turned into a separate company, pending approval at an extraordinary shareholders meeting.

Toshiba will sell a stake of less than 20 percent in its flash memory operation to generate several hundred billion yen to avoid falling into negative net worth in the current business year to March, sources familiar with the matter said earlier.

“We will do whatever it takes, including increasing capital,” Toshiba Chief Executive Satoshi Tsunakawa said at a news conference. “I really feel responsible (for what has happened). Whether or not I’ll resign is left to the nominating committee’s decision, but I will carry out my responsibilities until March” when the current business year ends.

Last month, the industrial conglomerate said that it could book an impairment loss of “several billion dollars” in its U.S. nuclear business with plant project delays leading to cost overruns.

But the loss stemming from writing down the value of assets in the nuclear division could reach as much as ¥700 billion, according to the sources.

The write-down could wipe out the company’s shareholder equity, which stood at ¥363.2 billion as of the end of September.

Toshiba said earlier this week that it will finalize the impairment loss by Feb. 14, when it reports its group earnings for the April-December period.

The company said the chip operation logged an operating profit of ¥110 billion on sales of ¥845.6 billion in the fiscal year that ended March 2016, when Toshiba posted a group operating loss of just over ¥708.7 billion.

Toshiba’s board approved the spinoff Friday, with possible buyers including U.S. data storage company Western Digital Corp. — a joint operator of Toshiba’s Yokkaichi flash memory plant — and private equity firms such as Bain Capital and Permira.

Canon Inc. Chairman Fujio Mitarai also said last week that the maker of printers, cameras and office equipment is considering buying a stake in the spun-off company.

Toshiba has also been scrambling to sell other assets and operations to raise an additional ¥300 billion, the sources said.

Earlier in the week, main creditor banks of the struggling company decided to maintain their loans until the end of February.

The Tokyo Stock Exchange has already put Toshiba shares on its watch list, making it hard to tap equity markets to bolster its capital.