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Business deals

Toshiba settles row with Western Digital over sale of chip unit

The two sides agree to continue partnership, safeguard secrets from rivals

Toshiba and Western Digital will continue their joint investment at the chipmaking operations in Yokkaichi, Japan.

TOKYO -- Toshiba said Wednesday it has agreed to settle its legal dispute with U.S. memory storage company Western Digital over the sale of the Japanese conglomerate's flash memory business.

The two companies will withdraw their lawsuits against one another, Toshiba said.

In trading on the Tokyo Stock Exchange, the price of Toshiba shares went up 2.6% to 314 yen, their highest point since Nov. 9.

While Toshiba hopes to complete the sale of its memory unit by the end of March 2018, the accord with Western Digital will leave antitrust screening in China as the only hurdle to a sale. Toshiba, struggling with massive losses from its U.S. nuclear power operations, is now set to begin a comprehensive restructuring.

The agreement calls for the two companies to invest in and develop cutting-edge memory chips together. The accord was announced jointly by Toshiba Memory and Western Digital.

In May, Western Digital filed suit with the International Court of Arbitration to stop Toshiba's sale of Toshiba Memory to a third party. As the dispute had become a major stumbling block to the sale, Toshiba filed suit with the Tokyo District Court in June, seeking compensation for losses resulting from Western Digital's litigation.

Under the accord, Western Digital will give its blessing to the sale of Toshiba Memory to a three-country consortium led by U.S. investment fund Bain Capital.

Strengthened cooperation

Toshiba and Western Digital will also strengthen their cooperation in development and production of memory chips. The two companies will resume joint investment in a new chip production facility at the world's largest memory factory, Toshiba's Yokkaichi plant in western Japan's Mie Prefecture.

The agreement enables Western Digital to procure advanced memory chips to be made at the new facility. Access to the chips was a key factor in Western Digital's decision to end the legal dispute with Toshiba, analysts say.

Toshiba and Western Digital also intend to jointly invest in a new chip plant in Kitakami, Iwate Prefecture, which Toshiba Memory plans to open after 2021. Talks will now be held to work out a final deal for the sale of Toshiba Memory, and the form of Western Digital's participation. Toshiba and Western Digital also agreed to extend their joint venture agreements defining their roles at the Yokkaichi plant.

During negotiations with Toshiba, Western Digital called for restrictions on involvement in Toshiba Memory by its rivals in the consortium, such as SK Hynix of South Korea.

The main sticking point was settled when Toshiba and Bain pledged to limit SK Hynix's involvement in Toshiba Memory and prevent the South Korean company from obtaining confidential information. Toshiba and Bain also agreed to limit the sale of Toshiba Memory shares to Samsung Electronics and other rivals of Western Digital, according to people close to the matter.

In a telephone news conference on Wednesday, Western Digital CEO Steve Milligan said the company has reached the deal with Toshiba based on the understanding that the company can protect chip designs and intellectual property rights developed by the two companies over the past 17 years.

Toshiba decided in February to sell its prized flash memory business after the company's shareholder equity fell deep into the red. It has until the end of March 2018 to resolve this problem or be delisted from the Tokyo Stock Exchange.

Toshiba had held talks with Western Digital, the Bain-led consortium and other potential buyers, including Hon Hai Precision Industry of Taiwan. At the end of September, it signed a contract to sell Toshiba Memory to the consortium for 2 trillion yen ($17.67 billion).

Because Chinese antitrust authorities appear unlikely to authorize the sale of Toshiba Memory by the end of next March, Toshiba raised 600 billion yen in November by allotting new shares to U.S. investment funds and others. With the capital increase, Toshiba believes it can dig itself out of negative net worth, even if the sale of Toshiba Memory falls through.

(Nikkei)

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