Business / Corporate

Toshiba gives chip bid dibs to Western Digital after INCJ gets cold feet

INCJ switches sides after concern over legal battle

Kyodo, JIJI

Toshiba Corp. has apparently decided to pick a group led by Western Digital Corp. as the preferred bidder for its contentious chip-making unit, ending negotiations with a Japan-U.S.-South Korean consortium, sources close to the move said Thursday.

The decision on the sale of Toshiba Memory Corp. was made at a meeting of the embattled conglomerate’s board members on Thursday.

The Japan-U.S.-South Korean consortium had been its favored suitor, but talks stalled, the sources said.

Toshiba President Satoshi Tsunakawa is expected to hold talks with Western Digital CEO Steve Milligan later this week in Japan so it can end the related legal dispute with its joint venture partner and close the chip deal by the end of this month, the sources said.

Western Digital, an American company that jointly runs a flash memory plant with Toshiba in Mie Prefecture, will team up with U.S. investment giant Kohlberg Kravis Roberts & Co., the state-backed Innovation Network Corp. of Japan and the government-run Development Bank of Japan.

Ties between the two companies soured after Western Digital took Toshiba to court for trying to sell the chip unit without its consent. It alleged that doing so would breach their joint venture contract.

Toshiba is hoping to sell off the chip business to cover huge losses from Westinghouse, its now-bankrupt former U.S. nuclear unit. The company might be forced to delist from the Tokyo Stock Exchange unless it eliminates its negative net worth by March next year.

As of the end of March this year, Toshiba saw debts exceed assets by ¥552.9 billion due mainly to losses totaling over ¥1 trillion from its U.S. nuclear unit.

The troubled manufacturer needs to rush because a deal with the Western Digital-led consortium will be subject to regulatory approval from antitrust authorities — which could take more than six months.

While the Western Digital-led consortium has offered ¥1.9 trillion ($17 billion) to acquire the chip business, it plans to receive investment from Japan Post Bank Co. and others to meet the ¥2 trillion price tag set by Toshiba.

Western Digital, which jointly invested in Toshiba’s Yokkaichi flash memory plant, had been seeking control of Toshiba Memory from the beginning. But it has softened its stance and offered several hundred billion more yen to ease Toshiba’s concerns about antitrust delays.

Western Digital’s investment in the chip unit will lead Toshiba to offer a stake of less than 20 percent to minimize the U.S. firm’s influence on management, according to the sources.

The U.S. data storage giant, which plans to put up hundreds of billions of yen, is expected to complete due diligence on Toshiba Memory next week.

In June, Toshiba announced it had picked a government-led group as the preferred bidder, which included U.S. investment fund Bain Capital and South Korean chipmaker SK Hynix Inc. as well as INCJ and DBJ.

But negotiations with the state-backed group stalled when INCJ grew concerned about the legal battle with Western Digital, which opposed selling the chip business to its rivals.

The resulting delays forced Toshiba to miss its deadline in late June to seal a deal with the consortium.

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