June 1, 2017 1:56 am JST  (Updated June 1, 2017 5:12 am JST)

Toshiba seeks to sidestep Western Digital in flash memory sale

Japanese conglomerate may retake memory unit's stakes in joint operations

TOKYO -- Toshiba seeks to regain its stakes in joint chipmaking operations with Western Digital as soon as early June, partly undoing a spinoff that the U.S. partner opposed, so that the Japanese group can proceed with a much-needed sale, it was learned Wednesday.

The American hard-drive maker filed a request for arbitration May 15 to block the planned sale of spinoff Toshiba Memory, holding that any transfer of the operations to a third party without its consent violates joint venture agreements.

By transferring Toshiba Memory's ownership in their jointly run Japanese chip fabrication facilities back to Toshiba proper, the Japanese parent believes it can restore the status quo from before the April spinoff and render Western Digital's argument moot. This would allow it to move ahead with the sale of a majority stake in Toshiba Memory.

Toshiba plans to pick a winner as early as mid-June from among the remaining four bids -- led by U.S. private equity firms Bain Capital and Kohlberg Kravis Roberts, American chip company Broadcom and Taiwanese contract manufacturer Hon Hai Precision Industry. The Japanese conglomerate aims to get on track toward a sale by its June 28 general shareholders meeting and complete the transaction by the March 2018 fiscal year-end to bring its shareholders' equity back into positive territory after massive losses on U.S. nuclear operations.

Elusive deal

Western Digital CEO Steve Milligan and Toshiba President Satoshi Tsunakawa met in late May to work toward resolving the dispute. A proposal was floated for Western Digital to partner with a Japanese team centering on the public-private Innovation Network Corp. of Japan on a joint bid for Toshiba Memory, according to a person familiar with the nature of the discussions. But the U.S. company's insistence on a majority stake and the industry ministry's desire to keep key technology in Japan, among other factors, apparently prevented an accord.

The transfer of the joint venture stakes back to Toshiba would take a major asset -- ownership of the flagship Yokkaichi fabs in Japan -- out of Toshiba Memory's hands. Though the unit would retain its personnel and intellectual property, losing the production assets would leave unclear whether it can fetch the 2 trillion yen ($18 billion) sought by Toshiba.

Toshiba is considering selling the stakes to the eventual buyer of Toshiba Memory after the initial sale is finished. But such a move could face renewed opposition from Western Digital, complicating the process. Whether Toshiba's lender banks support this arrangement would also be key to realizing the move.

(Nikkei)

Toshiba Corp.

Japan

Market(Ticker): TKS(6502)
Sector:
Industry:
Consumer Durables
Electronics/Appliances
Market cap(USD): 10,836.53M
Shares: 4,237.60M
Asia300

Hon Hai Precision Industry Co., Ltd.

Taiwan

Market(Ticker): TAI(2317)
Sector:
Industry:
Electronic Technology
Computer Peripherals
Market cap(USD): 66,006.07M
Shares: 17,328.73M

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