• Kyodo

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Toshiba Corp. said Wednesday it has reached a settlement with U.S. joint venture partner Western Digital Corp. over the sale of its chip unit, ending a months-long legal battle and removing one of the major hurdles to completing the deal.

Cash-strapped Toshiba is seeking to raise funds through the sale of its chip unit Toshiba Memory Corp. to eliminate its negative net worth by the end of the business year in March and avoid a forced delisting from the Tokyo Stock Exchange.

But even though legal issues with Western Digital have been resolved, antitrust screening in major global markets could still be a major hurdle.

Western Digital has agreed to drop its legal action aimed at blocking the sale of Toshiba Memory. The U.S. hard-disk drive maker had claimed that selling the chip unit to a third party without its consent would be a breach of contract.

Toshiba will also end its legal claims, with the two companies set to resume their joint investment at Toshiba’s Yokkaichi plant in Mie Prefecture, the companies said in a joint statement released Wednesday. They will also continue talks about jointly investing in Toshiba’s new plant in Iwate Prefecture that will start construction next year.

“We are very pleased to have reached this outcome, which clearly benefits all involved,” Toshiba Senior Executive Vice President Yasuo Naruke, also the president of Toshiba Memory, said in a joint statement released Wednesday.

“With the concerns about litigation and arbitration removed, we look forward to renewing our collaboration with Western Digital, and accelerating (Toshiba Memory’s) growth to meet growing global demand for flash memory.”

On a teleconference held Wednesday following the announcement, Western Digital Chief Executive Officer Steve Milligan expressed relief about ending the legal battle, saying that litigation was not what his company wanted.

“We wanted to make sure that our interests in the joint ventures were sufficiently protected and we had the right kind of protections and the right kind of access,” he said.

“We’re in fact very pleased to be able to resolve this, put this behind us and look forward to the future not only for ourselves but for the joint ventures with (Toshiba Memory),” Milligan added.

In September, Toshiba decided to sell Toshiba Memory shares to a Japan-U.S.-South Korea group led by U.S. fund Bain Capital. The consortium includes the state-backed Innovation Network Corp. of Japan, the Development Bank of Japan and South Korean chip maker SK Hynix Inc.

As the legal action could have delayed the sale, Toshiba had to draw up a contingency plan in case the deal did not close in time. Last week, the company raised ¥600 billion ($5.3 billion) through a third-party allocation of new shares with 60 overseas investment funds, effectively removing the risk of delisting and enabling the firm to take the upper hand in negotiations with Western Digital.

Toshiba had told Western Digital that unless it dropped its lawsuit, the Japanese manufacturer would build a new chip production facility on its own at its Yokkaichi plant. Demand for the memory chips to be produced at the new factory is strong overseas.

Toshiba will continue to hold a 50.1 percent stake in the joint venture operation, with Western Digital owning the rest. The companies have also agreed to maintain the proportion of flash memory chips the two companies can receive.

Toshiba’s profits continue to be driven by its semiconductor unit. Last month, Toshiba said its group operating profit for the six months to September more than doubled from a year earlier to a record ¥231.77 billion, helped by robust global demand for chips that are used in data centers.

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