Toshiba Corp. is all but guaranteed to miss a May 1 deadline to sell its memory chip business to a Bain Capital-led group, people familiar with the matter said, raising the chances it may consider other options that could yield billions of additional dollars for the unit.
Chinese regulators are now conducting a third review of the deal, which is due to be completed by May 28, said one of the people, who asked not to be identified because the discussions aren’t public. The process was originally supposed to be wrapped up by March 31. Toshiba and Bain want to finalize the current agreement, but they can’t wait forever, another person said.
Toshiba may be able to fetch a higher price for its semiconductor unit if it seeks alternatives to the ¥2 trillion ($18.6 billion) sale. The division is probably worth at least $22 billion to $24 billion now and Toshiba could realize that value through an initial public offering or a renegotiated sale agreement. The Tokyo-based company originally put the business on the block under duress when it needed billions to pay for losses in its nuclear operations, but it has since raised cash to alleviate those concerns. The possibility of an alternative scenario is increasing, according to Amir Anvarzadeh, senior strategist at Asymmetric Advisors in Singapore.
“This should be a short-term positive for its shares,” Anvarzadeh wrote in a note.
A representative for Bain wasn’t immediately available for comment. Toshiba hasn’t made any decision to cancel the transaction, spokeswoman Midori Hara said, responding to a report in the Mainichi newspaper that the deal was in danger. The company intends to close the transaction as soon as possible, she said.
Nobuaki Kurumatani, who just took over as the chief executive officer and chairman of the electronics maker, said earlier this month he is committed to selling the chip unit despite regulatory hurdles. But he also warned at the time that if China rejected the deal Toshiba and Bain would have to reconsider. The sale may have been caught up in the increasingly acrimonious U.S.-China trade dispute because Bain is an American company, one of the people said.
“Waiting for approval from Chinese authorities is all that’s left to do,” Kurumatani, 60, said in an interview this month. “Not getting the approval would qualify as a material change.”
China has a say in the transaction because its manufacturers buy memory chips from Toshiba and others, and the country is also spending billions to build up its domestic industry. Officials at China’s Ministry of Commerce could impose conditions that would impact the value of the business, such as requiring Toshiba to freeze prices or separate its solid-state disk and chip memory operations. If the Bain deal falls apart, Toshiba could re-negotiate the terms, potentially at a higher price, take the memory chip business public or retain the division.
Toshiba’s lenders, which have helped the company stay afloat and have supported the sale, will play a key role in any decision. Sumitomo Mitsui Banking Corp. and Mizuho Financial Group Inc. plan about ¥600 billion in secure loans for the chip unit if the sale goes through. Keeping the business inside Toshiba would put the burden of capital expenditures back on the struggling company and would be likely to require additional financing from the banks.
It would take “substantial material” changes for the company to invoke its right to terminate the current sale agreement, Kurumatani, a former banker from one of Toshiba’s main creditors, said at the time.