Toshiba faces tough climb out of nearly $5bn hole
Partner's move to halt memory unit sale could close off main turnaround option
TOKYO -- The looming legal battle over the sale of Toshiba's memory arm has cast further doubt on the company's prospects for recovering from a financial meltdown that has left it with 540 billion yen ($4.75 billion) more in liabilities than in assets.
The conglomerate released unaudited results Monday for the fiscal year ended March 31 showing a net loss of 950 billion yen, owing partly to the bankruptcy of U.S. nuclear unit Westinghouse Electric. This is the second-largest such loss ever for a Japanese nonfinancial company, topped only by the 1.24 trillion yen loss suffered by Tokyo Electric Power Co. Holdings, then Tokyo Electric Power Co., in fiscal 2010 after the March 2011 disaster at the Fukushima Daiichi nuclear plant.
The results also showed liabilities exceeding assets at the end of March, a first for Toshiba. As such, the company will be demoted Aug. 1 from the Tokyo Stock Exchange's first section to the second section. If shareholders' equity remains in the red at the end of fiscal 2017, Toshiba will be delisted automatically. To avoid this fate, the company has put together a plan to rebuild its finances that centers on selling Toshiba Memory, its spun-off memory chip unit, for at least 2 trillion yen.
But Western Digital, which operates chip fabrication facilities with Toshiba in Yokkaichi, Mie Prefecture, filed a request for arbitration Monday with the International Chamber of Commerce's International Court of Arbitration, seeking to block the sale. The American hard-drive maker contends that any transfer of the chip operations without its consent would violate joint venture agreements.
The sale "poses no conflicts with the joint venture contract," Toshiba President Satoshi Tsunakawa retorted Monday. "Western Digital has no basis for stopping the procedure." Toshiba has threatened to restrict Western Digital's access to the Yokkaichi site.
Tsunakawa said the second round of bidding for Toshiba Memory will end Friday as scheduled. But the arbitration court probably will need time to reach a decision, which could delay the sale process.
Selling the memory business is one of Toshiba's few options left for lifting its net worth out of the red. If this is stymied by Western Digital, the Japanese giant's turnaround plan will run aground.
On top of this, Toshiba must also convince auditor PricewaterhouseCoopers Aarata to sign off on an annual securities report due at the end of June. A dispute over losses from U.S. nuclear operations has prevented Toshiba from releasing audited earnings and at one point spurred the company to consider switching auditing firms.
Tsunakawa said Toshiba will consult with PwC Aarata to secure a clean opinion. But with the auditor insisting that further investigation into the losses is needed, sorting out the dispute is likely to take a while.