Tussle over Toshiba chip unit heats up as field thins
Foxconn enlists aid from SoftBank, Apple while Western Digital wields contract
TOKYO -- Though Toshiba has begun narrowing down the candidates to acquire its memory unit, no favorite has emerged, and the remaining players are doing all they can to gain an edge.
About 10 enterprises participated in the first round of bidding for Toshiba Memory, including other chipmakers and investment funds from the U.S., South Korea and Taiwan. Toshiba, which aims to pick a winner by its general shareholders meeting in June, has reportedly whittled down its options to four or five. After talks with each candidate and due diligence, the Japanese conglomerate will hold a second bidding round, wrapping up in mid-May, to choose its preferred negotiating partner.
Toshiba seeks to sell the business for 2 trillion yen ($18.4 billion) or so to fill the hole left in its finances by massive losses in its U.S. nuclear operations.
Hon Hai Precision Industry, also known as Foxconn, is believed to have offered about 3 trillion yen. The Taiwanese contract manufacturer of electronics hopes to use the memory business to step up a foray upstream into component production.
But Japan's government and business community cannot stand idly by given the risk of technology outflows to foreign countries. Foxconn Chairman Terry Gou has asked his friend Masayoshi Son, chairman of telecommunications giant SoftBank Group, for indirect support such as hooking up Foxconn with Japanese financial institutions.
In last year's bailout of Sharp, Foxconn lured the struggling electronics maker away from the other main contender, the public-private Innovation Network Corp. of Japan, at the last second. It is similarly intent on winning over the Japanese side this time around and has reportedly sounded out close business partner Apple about teaming up for a bid.
That said, Toshiba needs not only money, but speed as well. Any deal must clear antitrust reviews in the relevant countries quickly to ensure the company's net worth is back in positive territory by the end of this fiscal year.
The option least likely to cause problems on this front is a joint bid involving Broadcom, an American maker of semiconductors for telecommunications and other applications. Broadcom and U.S. private equity firm Silver Lake Partners have reportedly offered 2 trillion yen. Though South Korea's SK Hynix also remains in the running, its No. 5 ranking in the global flash memory market would cause antitrust concerns.
Western Digital's complaint to Toshiba's board adds another wrinkle. The U.S. hard-drive maker, which operates chip fabrication facilities with Toshiba, argued in a letter dated April 9 that the joint-venture contract requires Western Digital's approval for any sale of the memory business or the use of shares of the unit as collateral for bank financing. Given that the two share technical information, Toshiba cannot simply dissolve the venture based only on its own circumstances.
A proposal has also been floated for an all-Japanese consortium of investment funds and companies that did not participate in the first bidding round to seek a joint stake.