May 15, 2017 4:55 pm JST

Toshiba president says Western Digital has 'no basis' for opposing chip unit sale

Offloading semiconductor business crucial as company struggles with massive losses, negative net worth

SHOTARO TANI, Nikkei staff writer

Toshiba President Satoshi Tsunakawa speaks at a press conference in Tokyo on May 15.

TOKYO -- The president of Toshiba said the company's memory business partner Western Digital has "no basis" for opposing the sale of Toshiba's chip arm, as the U.S. memory giant sought international arbitration to stop the Japanese conglomerate from conducting the sell-off.

"The majority stake sale of the semiconductor business poses no conflicts with the joint venture contract" with Western Digital, said Toshiba President Satoshi Tsunakawa at a press conference in Tokyo on Monday. Therefore, "Western Digital has no basis for stopping the procedure. We will communicate to the candidates the legitimacy of our argument to wipe out their concerns."

Western Digital, which is a long-standing joint venture partner in Toshiba's main Yokkaichi semiconductor plant, on Monday said it had initiated arbitration procedures with the International Chamber of Commerce International Court of Arbitration, requesting that Toshiba reverse its moves of putting the joint venture assets into a separate entity, Toshiba Memory, and that it stop the sale of the entity without the consent of Western Digital unit SanDisk.

Tsunakawa refuted the claims by Western Digital, saying that the joint venture contract does not require an agreement from the other party, in cases such as the change of control under a third party transfer. "When Western Digital bought SanDisk, it did so without the consent of Toshiba," Tsunakawa said, adding that he intended to continue talking to Western Digital's CEO Steve Milligan to resolve the matter.

An early conclusion to the dispute is crucial for the embattled Japanese conglomerate, as it is counting on the proceeds of the sale to move it out from negative net worth. In its unaudited full-year earnings estimates for fiscal 2016, released on Monday, the company finished the year ended this March with 260 billion yen ($2.29 billion) in negative net worth, and said it expects to be in 240 billion yen in negative net worth without the sale of assets such as its memory subsidiary. Under Tokyo Stock Exchange rules, a company that is in negative net worth for two consecutive years faces delisting from the market.

Other aspects of the financial results do not bode well for the company. Toshiba posted a net loss of 950 billion yen, as it booked losses stemming from its U.S. nuclear unit Westinghouse Electric's filing for Chapter 11 bankruptcy. It also said it expected to post revenue of 4.87 trillion yen in the year ended March 31, compared with 5.15 trillion yen the year before.

Tsunakawa said that he "takes seriously" the fact that the company reported nearly 1 trillion yen in net losses. Despite clashing with its auditor, PricewaterhouseCoopers Aarata, over issues related to massive losses at its U.S. nuclear unit Westinghouse Electric, it will cooperate to release the audited financial results to meet the end of June deadline.

Shares in Toshiba ended the day up 3.4% at 261.8 yen.

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