Business / Corporate

Apple plays kingmaker in Toshiba chip drama with $3 billion plan to back Bain's bid

by Peter Elstrom, Alex Sherman and Ian King

Bloomberg

Apple Inc. is playing the role of kingmaker in the contentious battle for Toshiba Corp.’s memory chip business.

The iPhone maker is in talks to provide about $3 billion in capital for Bain Capital’s bid for the unit, adding to financial support from Dell Inc., Seagate Technology PLC and SK Hynix Inc., according to people familiar with the matter. That support convinced Toshiba to sign a memorandum of understanding with Bain and work toward a final agreement this month, said the people, asking not to be identified because the matter isn’t public.

Apple plans to take an equity stake alongside Bain, they said. If the agreement is completed, it may exceed Apple’s largest deal ever, the $3 billion acquisition of Beats Electronics LLC.

The Cupertino, California-based company is helping swing the deal away from Western Digital Corp., one of Apple’s own suppliers that tried to buy the chip unit with KKR & Co.

Apple’s money will help fill a gap left when state-backed Innovation Network Corp. of Japan (INCJ) and Development Bank of Japan (DBJ) decided to pull back from the Bain bid in the face of litigation from Western Digital. Apple spokesman Josh Rosenstock declined to comment.

Toshiba has been in negotiations for months to sell off its chip business and pay for a disastrous move into the U.S. nuclear business. The company needs to raise the money by March to avoid seeing its shares delisted from the Tokyo Stock Exchange. The auction has been complicated by legal action from Western Digital, which has argued it should have veto rights in any sale because of its partnership with Toshiba in the chip business. The Japanese company disputes that and sued Western Digital for more than $1 billion for interfering in the auction.

Apple has opposed Western Digital’s bid and decided to back Bain because of the business’s strategic importance, the people said. Apple depends on flash memory from Toshiba in its iPhones and iPods, and wants a continued supply so that it is not dependent on rival Samsung Electronics Co. The iPhone maker’s largest deal to date was the Beats acquisition in 2014.

Toshiba said Thursday it “regrets” that Western Digital is persistently overstating its rights and that the Japanese company is committed to completing the chip sale by March.

Toshiba selected a Bain-backed group as its preferred bidder in the chip sale in June, as the Tokyo-based company sought to close the deal that month. At the time, the Bain consortium offered about ¥2.1 trillion ($19.1 billion) and included INCJ and DBJ. The effort was hampered by opposition from Western Digital, which solicited support from Japanese government officials and banks.

Last month, the powerful Ministry of Economy, Trade and Industry encouraged Toshiba to accept a rival offer from the Western Digital consortium, people familiar with the matter said at the time, in an effort to end the litigation and reach a deal quickly.

Yasuo Naruke, head of the chip business, and several other top executives resisted the Western Digital proposal, the people said.

In the meantime, Yuji Sugimoto, managing director for Bain in Japan, worked to win Apple’s support. The precise composition of the Bain group is still in flux and may change, the people said. There is no guarantee they will be able to reach a final agreement with Toshiba.

Taiwan’s Hon Hai Precision Industry Co., the Taiwanese company that makes Apple’s iPhones, made an appeal this month for its own effort to acquire Toshiba’s chip unit, detailing support from partners including Apple. Still, METI officials have opposed selling the business to Hon Hai, also known as the Foxconn Technology Group, because of its ties to China, home to many of the company’s factories.

Toshiba has missed several self-imposed deadlines to reach a final deal. After initially identifying Bain as the preferred bidder in June, Toshiba said on Aug. 31 that it was in talks with three bidding groups and was struggling to reach a “definitive agreement.”

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