Western Digital Corp. appears to be softening its stance on troubled partner Toshiba Corp.’s chip unit sale and has told the ailing conglomerate it might be willing to take a smaller stake in the unit instead of purchasing it outright, sources said.
The U.S. company, which jointly runs Toshiba Memory Corp. with Toshiba in Yokkaichi, Mie Prefecture, has objected to its sale to anyone but itself and demanded preferential consideration.
A plan to get Western Digital to join a Japan-U.S. consortium that includes the state-backed turnaround fund Innovation Network Corp. of Japan as a potential buyer has also been floated, the sources said Saturday.
Western Digital has already begun behind-the-scenes talks on the possibility with the Ministry of Economy, Trade and Industry, according to the sources, and a focal point would be to what extent it can formulate the plan before its executives visit Japan in June.
Toshiba, which is reeling from its worst financial crisis ever, is in the process of trying to sell a majority stake in Toshiba Memory. It is looking to raise at least ¥2 trillion ($18 billion) to make up for huge losses in its nuclear business and reverse its negative net worth by next March to avoid getting delisted from the Tokyo Stock Exchange.
But Western Digital is opposed to selling Toshiba Memory to a third party, claiming it has a right to veto the move as a joint venture partner. The U.S. firm had planned to offer ¥1.5 trillion through preferred shares, while asking the turnaround fund and the state-owned Development Bank of Japan to provide some ¥500 billion in cash for common equity so it can later acquire the common shares from them.
However, the plan would likely violate antitrust laws in some countries such as China. Toshiba President Satoshi Tsunakawa apparently relayed his company’s concerns to Western Digital CEO Steve Milligan at their meeting Wednesday in Tokyo, possibly leading to the change in the U.S. firm’s stance.
Still, some people close to the matter remain even more cautious over Western Digital’s participation in the government-led consortium. They say that just a small investment by the U.S. chipmaker, which commands the third-largest share of the flash memory market , could face challenges in clearing antitrust screenings in some countries.
A total of four bidders, including U.S. investment fund Kohlberg Kravis Roberts and Taiwan’s Hon Hai Precision Industry Co., remain potential buyers. The Japanese turnaround fund is pursuing an alliance with KKR, among others.
Earlier this month, Western Digital took legal action against Toshiba’s plan to sell Toshiba Memory, asking the International Court of Arbitration of the Paris-based International Chamber of Commerce to block the sale. If the case gets tied up in the courts, Toshiba may face no choice but to be delisted.
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