Business / Corporate

Toshiba, Western Digital reach broad agreement on chip unit sale

Kyodo

Toshiba Corp. and Western Digital Corp. reached a broad accord on the sale of the Japanese conglomerate’s chip unit as the U.S. company has agreed to drop its legal actions, sources close to the matter said Monday.

The prospect emerged as Western Digital CEO Steve Milligan arrived in Japan to meet with Toshiba’s Satoshi Tsunakawa to discuss a deal crucial to Toshiba’s restructuring efforts.

Milligan has also met with officials of the Ministry of Economy, Trade and Industry, the sources said. The CEO is expected to continue to make final arrangements with Tsunakawa.

Tsunakawa is likely to make a final decision on the deal at a board meeting Thursday and make an announcement the same day. Toshiba had told Western Digital a deal would be reached on condition the U.S. company drops its legal actions.

Western Digital, which has jointly invested in Toshiba’s Yokkaichi flash memory plant in central Japan, has taken the Japanese conglomerate to court to block the sale of Toshiba Memory Corp., claiming a sale without its consent would breach their joint venture contract.

The Western Digital-led group has so far raised ¥1.9 trillion ($17 billion) of Toshiba’s ¥2 trillion asking price for Toshiba Memory Corp.

California-based Western Digital has proposed paying ¥150 billion of that amount by purchasing bonds convertible into common shares, forgoing voting rights for now.

Monday’s negotiations were expected to focus on the size of the voting right in Toshiba Memory that Western Digital would be entitled to in the future. It may alternatively accept preferred shares. Toshiba hopes to keep Western Digital’s voting privilege under 20 percent in consideration of antitrust regulations in various countries.

Toshiba Memory would remain under Japanese control, with more than 60 percent of voting rights held by Japanese parties, sources said.

The price tag would also be covered by investments of ¥300 billion each from the government-backed Innovation Network Corp. of Japan, the Development Bank of Japan and U.S. fund Kohlberg Kravis Roberts & Co.

Toshiba is seeking to retain some share.

Participants plan to make a return on investment by taking the unit public several years down the line.

Toshiba is racing to finalize the sale to cover huge losses from its now-bankrupt U.S. nuclear power unit, Westinghouse Electric Co. The losses have plunged the conglomerate into negative net worth, a situation it must remedy by next March to avoid delisting from the Tokyo Stock Exchange.

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