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SK Hynix drops demand for voting stake in Toshiba chip unit

JIJI

South Korea’s SK Hynix Inc., a member of the international consortium favored to purchase Toshiba Corp.’s flash memory subsidiary, has dropped its demand for voting rights in the unit, sources said.

The major semiconductor maker has informed related parties of its intention to provide lending to the acquisition framework of the consortium, which is led by the government-backed Innovation Network Corp. of Japan, the sources said.

The decision removes the biggest obstacle to uniting the members of the consortium, which was picked on June 21 as the preferential bidder for Toshiba Memory Corp.

Following a petition filed by U.S. hard disk drive maker Western Digital Corp. for an injunction to block the sale of Toshiba Memory, a California superior court held off making a decision on Friday, a step that could make it possible for Toshiba to conclude a deal to sell the unit.

If the conflict within the Japanese-U.S.-South Korean consortium is resolved, Toshiba will be in a better position when it holds talks with Western Digital, its joint partner in the flash memory business. The struggling electronics and machinery giant needs to sell the prized flash memory unit to erase its negative net worth by March 2018 so it can remain listed on the Tokyo Stock Exchange. The situation was caused by huge losses at Westinghouse, its U.S. nuclear energy business.

After becoming the preferred bidder, the consortium was thrown into disarray by SK Hynix’s demand for a voting stake in its rival. SK Hynix was originally added to provide funding to U.S. investment fund Bain Capital, another member of the group.

If SK Hynix sticks to its demand for the stake, the consortium’s bid to acquire the flash memory firm could face a protracted antitrust screening, clouding the prospects for reaching an agreement by March 2018.

The negotiations have been delayed substantially by the demand and by the strong opposition put up by Toshiba’s partner Western Digital.

Some in the consortium have called for bringing Western Digital into the consortium to help sort out the legal difficulties between it and Toshiba.

Following SK Hynix’s decision, Toshiba aims to conclude the deal by the end of July, the sources said.

Partners Toshiba and Western Digital are fighting over issue because Toshiba’s goal is to raise as much money as possible from the sale and Western Digital’s goal is to acquire the highly competitive unit for itself.

In addition to the petition for the California court injunction, Western Digital has taken its case to the International Court of Arbitration of the Paris-based International Chamber of Commerce. Toshiba has meanwhile asked the Tokyo District Court to seek an injunction ordering Western Digital to stop interfering with the sale.

The two companies cannot part ways to continue production at their flash memory joint venture, a source said.

In the exchange of lawsuits, each is believed to be aiming for a favorable out-of-court settlement. Toshiba and Western Digital are likely to seek a compromise during the ICA proceedings in August and beyond, industry watchers said.