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New Toshiba CEO takes over amid memory sale delay

Kurumatani eager to secure funds and move on to infrastructure

Nobuaki Kurumatani became the first outsider appointed as Toshiba's chairman and CEO in over 50 years.

TOKYO -- Toshiba's new leader took the helm of the company this month amid uncertainties over the long-delayed sale of the prized memory business and the associated risks.

"We aim for a speedy sale," Chairman and CEO Nobuaki Kurumatani told Nikkei in an interview on Tuesday, his first since assuming the titles on Sunday. Yet he expressed openness to possessing a business like the memory segment "within an appropriate scope."

Ever since the Japanese company inked the deal worth 2 trillion yen ($18.7 billion at current rates) in September to sell Toshiba Memory to a multinational consortium led by U.S. equity fund Bain Capital, the parties have waited for the go-ahead from antitrust officials worldwide to complete the sale.

Reviews ended smoothly in the U.S., Japan and elsewhere. But China, which began its anti-competition screening in December, has been the biggest hurdle. Chinese audits typically last four months, and Toshiba had hoped to complete the transaction by the end of March. Yet the screening continues.

Chinese antitrust laws target corporations that generate a certain level of sales in the mainland and globally, and Beijing's incorporation of its own semiconductor industry into national policy creates another wrinkle. Many observers predicted a prolonged review from the start.

Toshiba and Toshiba Memory may have to adjust their investment strategies if the transaction remains in limbo for the long term. Toshiba Memory is building a new fabrication facility at its core Yokkaichi complex in Japan's Mie Prefecture. Construction also is expected to begin on a new plant in Iwate Prefecture sometime this year.

Through the memory unit's sale, Toshiba aims in part to lift the burden of risks associated with large investments, an executive of the electronics company said. Bain and other consortium members will pour funds into Toshiba Memory's operations. But as the delay continues, Toshiba grows more likely to face an additional financial load.

The problem is exacerbated by South Korean competitor Samsung Electronics, which consistently spends heavily on its own memory business. Delayed investments on Toshiba's side could damage Toshiba Memory's corporate value.

The contract signed with Bain grants Toshiba the right under certain conditions to annul the agreement starting this month. Bain acquires similar privileges in July. Toshiba holds its regular shareholders meeting in late June, hosting a group of investors who oppose the sale. Toshiba could blunt the criticism by completing the transaction before that meeting.

Toshiba likely held 460 billion yen in shareholder equity at the end of March, as well as an 11% equity ratio. But the group also bore 1.1 trillion yen worth of interest-bearing debt in December, mainly due to bank loans.

The company's main lenders pushed for the memory sale to ensure they would be repaid. Toshiba plans to devote the 2 trillion yen from the sale toward growth investments and to repay the banks, but continued red tape may alter that strategy.

Toshiba, as it releases the memory business, embarks on a complicated five-year restructuring effort, Kurumatani said. Memory generated operating profit of over 100 billion yen annually, more than any other segment at the group. None of the other business units can fill that hole.

The company looks to position the social infrastructure business as a growth segment, but the Japanese market is saturated. Though Toshiba possesses strength overseas in gas turbines and other areas related to generating power from fossil fuels, the global shift toward renewable energy such as solar and wind creates difficulty in landing new projects.

"We need to fortify basic business capabilities," Kurumatani said.

The company's infrastructure segment will offer business solutions tied to artificial intelligence and the "internet of things," he said. "I wish to unify hardware and software and shift to continuous-account-type businesses," Kurumatani said.

Toshiba, stung by an accounting scandal three years ago, is overhauling corporate governance as well. The company created an executive nominating panel consisting only of outsiders, and also is installing outside members to a majority of board seats. The number of executive officers was trimmed to 15 from 23 in November.

But Toshiba still uncovered improper accounting practices at a group company in December, indicating that reform efforts cannot be considered complete.

However, the company has all but moved on from its troubled nuclear operation.

"I think it was the right decision to exit from overseas," Kurumatani said. "The nuclear business contains huge risks that one company cannot control."

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