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Toshiba’s hopes for quick chip unit sale imperiled as talks stall over payment timing

Bloomberg

Toshiba Corp.’s talks to sell its chip business to a consortium led by Bain Capital have hit an impasse over the timing of payments for business and governance issues, according to people familiar with the matter, casting doubt on the company’s ability to complete a deal quickly.

The Bain group wants to make cash payments after Toshiba resolves its legal dispute with partner Western Digital Corp., while Toshiba wants the money earlier, said the people, asking not to be named because the matter is private.

Last week, without explaining the reasons, Toshiba President Satoshi Tsunakawa said that the company would hold talks with other possible purchasers because it hadn’t been able to reach final terms with the Bain group — which had been designated the preferred bidder. After a multibillion writedown of its U.S. nuclear business, Toshiba needs to complete the chip unit sale by March or face delisting from the Tokyo Stock Exchange.

The iconic Japanese firm is preparing for delisting even as it tries several strategies to complete the chip sale in time, the people said. Toshiba is putting pressure on Western Digital to withdraw its complaint, threatening to cut off access to future chip production the U.S. company needs. Meanwhile, Toshiba is considering alternative bidders such as Foxconn Technology Group, which had earlier expressed an interest in the business, the people said.

Tsunakawa, who had originally said he planned to have a definitive agreement by June, said during a news conference after earnings last week that the company wants to avoid delisting.

“The basic motivation for staying listed is that we do not want to inconvenience our shareholders and investors,” he said. “When it comes to delisting, we also need to consider the negative impact it would have on broader markets.”

He added that Toshiba remains open to cooperation with Western Digital if the two companies can find common ground. Toshiba needs to reach final deal terms by late August or early September to be able to close the sale by March, after antitrust and other government reviews, the people said.

“We will make the best effort to avoid Toshiba’s delisting,” said Hirokazu Tsukimoto, a Toshiba spokesman. Bain declined to comment.

The Bain group includes government-backed Innovation Network Corp. of Japan and Development Bank of Japan, as well as SK Hynix Inc.

The consortium offered ¥2.1 trillion for the chip unit, people with knowledge of the matter have said. Another sticking point, however, is Hynix’s role: the South Korean company is providing debt for the bid, but wants to be able to take an equity stake in the future, according to the people. That’s a problem for Toshiba because such terms may subject the offer to an antitrust review and possible opposition from the government, the people said.

The dispute between Toshiba and Western Digital has turned ferocious in recent weeks. The U.S. company has asserted that as a partner in the chip business it has rights in any sale, while Toshiba contends it does not. Western Digital has filed for arbitration in California, a process that threatens to delay the chip sale and force Toshiba’s delisting. Toshiba, in turn, has sued Western Digital for more than $1 billion in damages.

Toshiba is selling its prized semiconductor business, which makes storage chips for everything from iPhones to data centers, to pay for a devastating foray into the U.S. nuclear business. The company had to take a multibillion writedown because of project delays and cost overruns at its Westinghouse Electric unit. The business has filed for bankruptcy in the U.S.

Last Thursday, Toshiba reported a ¥965.7 billion net loss for the year ended March 31, and forecast ¥230 billion in net income for the current fiscal year. The company’s auditor, PricewaterhouseCoopers Aarata, gave a qualified endorsement of the figures — a milestone for the company that has been on a watch list for possible expulsion from the Tokyo Stock Exchange since September 2015.