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Western Digital takes fresh legal action against Toshiba after latest chip unit bid rebuffed

Kyodo

Western Digital Corp. said Wednesday it has taken legal steps against Toshiba Corp.’s investment in a new production site at their joint-venture chip plant, just hours after the Japanese firm rejected the California-based company’s bid to acquire its semiconductor unit.

Western Digital filed an arbitration request with the International Court of Arbitration, seeking to prevent Toshiba from making investments in the “Fab 6” manufacturing facility at their flash memory plant in Yokkaichi, Mie Prefecture, without first giving SanDisk Corp., its subsidiary, the chance to make a comparable investment.

Claiming Toshiba’s investment plan is a breach of their joint venture agreement, the legal action comes after Toshiba decided to sell its chip unit Toshiba Memory Corp. to a Japanese-U.S.-South Korean consortium led by U.S. investment fund Bain Capital.

Toshiba is selling Toshiba Memory to cover huge losses incurred by Westinghouse, its now-bankrupt U.S. nuclear unit, but Western Digital’s defeat in the months-long bidding war and its soured relations with Toshiba could delay the sales process or even scupper the deal.

Toshiba said Wednesday in Tokyo that the chip unit selloff would improve its balance sheet by some ¥740 billion, making it possible for the firm to get out of debt by the end of next March and avoid delisting.

Ties between the partners had deteriorated after Western Digital took Toshiba to court in May, claiming that selling the unit without its consent would breach their joint venture contract.

Western Digital said Toshiba’s unilateral investments in the Fab 6 facility violated the terms of their agreement and denied SanDisk’s rights to joint investment.

Under their agreement, Toshiba and Western Digital are to share products in line with the value of their investments.

The Fab 6 plant is expected to begin production of NAND flash memory in summer of 2018.

Toshiba has decided to sell Toshiba Memory to the consortium that includes the state-backed Innovation Network Corp. of Japan, South Korean chipmaker SK Hynix Inc. and a bevy of U.S. technology firms for ¥2 trillion ($18 billion).

In a last-minute offer, the Western Digital-led group had said it would give up seeking voting rights in the chip unit after initially demanding more than one-third of the rights to gain veto power, sources said.

While some board members had apparently expressed support for Western Digital’s proposal, it was eventually rejected as many in the company could not overcome their distrust of the U.S. firm following the legal dispute over the sale of the chip unit, the sources said.