• Bloomberg


Toshiba fired another legal missive at manufacturing partner Western Digital, warning the U.S. company to stop its “harassment” as the Japanese company tries to sell its flash memory business.

Toshiba sent a letter to Western Digital’s chief legal officer on Wednesday forcefully reasserting its right to auction off the business in which the two companies hold certain assets together. The letter, from Toshiba’s lawyer at Morrison & Foerster, said the joint venture only owns equipment — and nothing more — and that the value of those joint assets is less than 5 percent of the Japanese company’s chip business.

The Tokyo-based company wants to sell its flash memory chip spinoff to offset losses in its nuclear business and avoid having its shares delisted from the Tokyo Stock Exchange. Western Digital has sought to block the sale on concerns the operations may fall into the hands of competitors, but hasn’t been able to match the price offered by other bidders. Western Digital CEO Steve Milligan plans to present a revised offer as soon as this week, a person familiar with the matter said last week.

“Toshiba encourages Western Digital to redirect the considerable effort that it has put into disrupting Toshiba’s sale process into more productive channels,” Louise Stoupe, a partner at Morrison & Foerster, wrote in the letter.

The legal disagreement centers on the change of control provisions in the joint venture contract. In preparation for the divestment, Toshiba transferred ownership of the unit to a separate legal entity. Western Digital has argued that Toshiba needed to seek its permission before making that move, and that to resolve the dispute the two parties should enter arbitration. Toshiba responded by moving the joint venture assets back to the parent, a step it says resolves any grounds for dispute.

In the letter, it also stressed the joint venture assets “are worth millions and not billions.” The document goes on to detail in a series of bullet points what belongs to the venture and what belongs to its own subsidiary, Toshiba Memory Corp., based in the city of Yokkaichi, Mie Prefecture.

Toshiba contends that the joint venture companies do not own land at Yokkaichi, do not own the fabs or clean-rooms, do not own intellectual property or perform research and development, do not employ the hundreds of line engineers who actually manufacture NAND Flash — while Toshiba Memory does all of these.

The Japanese company, which in 1989 invented NAND flash memory now used to store information in devices ranging from smartphones to data centers, said the joint venture is just a financing vehicle. The agreement entitles Western Digital to purchase wafers from Toshiba at cost and “nothing more.”

If the joint venture assets are indeed worth less than 5 percent of the total of Toshiba’s memory business, that would likely value them at less than $1 billion. The offers for the whole business have been about $20 billion.

Toshiba narrowed the list of potential buyers to four bids as of a May 19 deadline for second-round offers. Broadcom and a group led by KKR had emerged as the two leading bidders, people familiar with the matter said at the time. Other suitors are Taiwan’s Hon Hai Precision Industry and South Korea’s SK Hynix.

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