Business / Corporate

Western Digital offers ¥2 trillion for Toshiba's chip unit

Kyodo, Staff Report

Western Digital has offered ¥2 trillion ($17.8 billion) to buy Toshiba’s chip unit put up for sale by the embattled Japanese conglomerate, sources said Wednesday.

Western Digital Chief Executive Officer Steve Milligan and Toshiba President Satoshi Tsunakawa held talks Wednesday over the potential acquisition. Toshiba is believed to have expressed reluctance to accept the plan.

According to the sources, Western Digital is planning to put up ¥1.5 trillion through convertible preferred shares, while asking the state-backed turnaround fund Innovation Network Corp. of Japan and the state-owned Development Bank of Japan to provide close to ¥500 billion for common equities.

The U.S. company will then acquire Toshiba Memory through a special purpose company and take up the common stock several years later, they said.

However, Western Digital’s plan could prolong antitrust examinations and cause an ill-timed delay for Toshiba, whose survival relies on the sale of the flash memory business.

The embattled giant is struggling to offset massive losses from its U.S. nuclear business, Westinghouse Electric.

The financially troubled company will be delisted from the Tokyo Stock Exchange unless it eliminates negative net worth by March next year.

Last week, Toshiba announced projected earnings for fiscal 2016, and the firm said it had a negative net worth of ¥540 billion as of the end of March, while its net loss would be ¥950 billion.

Toshiba is looking to raise at least ¥2 trillion by selling a majority stake in Toshiba Memory, the world’s second-largest producer of NAND flash memory chips after South Korea’s Samsung Electronics. The chips are used in devices such as smartphones.

Potential buyers of the chip business include U.S. investment fund Kohlberg Kravis Roberts, U.S. fund Bain Capital and Taiwan’s Hon Hai Precision Industry, which bought Japanese display maker Sharp.

Hon Hai has reportedly offered ¥3 trillion for the chip business.

Earlier this month, Western Digital, which has invested in and jointly operates Toshiba’s Yokkaichi flash memory plant in Mie Prefecture, filed with the International Court of Arbitration of the Paris-based International Chamber of Commerce to block the chip unit sale. The U.S. firm has also demanded exclusive negotiating rights.

Solving the dispute through the International Chamber of Commerce could take more than a year to complete, making it difficult for Toshiba to sell the flash memory unit by the end of this fiscal year in March 2018.

Meanwhile, Western Digital has been opposed to Toshiba’s plan to offer the stake in Toshiba Memory as collateral for new loans from creditor banks, but has apparently changed its stance due to concerns that its prolonged row with Toshiba could have a negative impact on operations.

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