June 8, 2017 7:01 am JST

Toshiba letter to Western Digital targets chipmaking site

Reassertion of its rights likely aimed at gaining upper hand in talks

Toshiba and Western Digital jointly operate chip fabrication facilities in Yokkaichi, Japan.

TOKYO -- Toshiba has sent a letter to U.S. hard-drive maker Western Digital to reaffirm its rights over a key chip production base as the two remain locked in a disagreement over a planned sale of the Japanese company's Toshiba Memory unit, it came to light Wednesday.

The troubled conglomerate likely sought the upper hand in private negotiations with Western Digital, as Toshiba works for a smooth conclusion on a deal to sell the profitable chip unit for a much-needed cash infusion.

In the missive, Toshiba restated that joint venture agreements with Western Digital assign ownership of the land, buildings and power facilities for the production base in the Japanese city of Yokkaichi to the Toshiba Memory unit, and not to their joint venture.

The venture bears responsibility for investments in facilities at existing plants, and holds the right to receive a predetermined portion of the memory produced. The conglomerate apparently intended to check Western Digital, which has revealed that it intends to build a new plant in Yokkaichi.

A source familiar with the situation says some of their joint venture agreements expire at the end of 2021, and would require written consent from both companies to continue.

Toshiba has begun building a new semiconductor fabrication facility at Yokkaichi that it calls Fab 6, geared to producing state-of-the-art chips with a higher storage capacity, but the framework of its partnership with Western Digital involving the new factory is unclear. With the first phase of the facility's construction pegged to finish in summer 2018, little time remains to work out an agreement. Toshiba has begun looking into the option of handling related investments, such as ordering manufacturing equipment, on its own.

Western Digital sought international arbitration May 15 to block Toshiba from selling the chip operations to a third party, claiming that any sale without its consent violated their joint venture agreements. Toshiba moved to nullify the complaint by transferring back to itself the ownership of shares in the joint venture from Toshiba Memory as of Saturday.

Though revelation of the letter -- not the first of this kind Toshiba has sent the U.S. company -- could deepen the opposition between the two parties, Toshiba appears set "to continue negotiating with Western Digital," an affiliated source said.

Western Digital CEO Steve Milligan will hold talks soon with Toshiba President Satoshi Tsunakawa. The two parties are coordinating so as to discuss possible compromises, such as Western Digital taking a smaller stake in Toshiba Memory than it initially sought.

(Nikkei)

Toshiba Corp.

Japan

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