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Toshiba's flagship Yokkaichi chip fabrication facilities are run jointly with Western Digital, which has taken legal action to block the Toshiba Memory sale.
Business

Toshiba's plans to sell memory unit getting complicated

Western Digital, Foxconn, INCJ-led group weighed as buyers; shareholders meeting by October

TOKYO -- As Toshiba hits a wall in its efforts to sell its flash memory unit to a favored buyer, the Japanese company is taking a second look at bids from suitors it previously spurned, according to a briefing Tuesday for key banks. Toshiba's plans to sell its memory chip business are becoming more and more convoluted.

The Japanese conglomerate on Wednesday decided it would hold an extraordinary shareholders meeting by the end of October.

On Tuesday, representatives from Sumitomo Mitsui Banking Corp., Mizuho Bank, Sumitomo Mitsui Trust Bank and four other major lenders attended a meeting, at which Toshiba officials, including Chief Financial Officer Masayoshi Hirata, provided an update on the Toshiba Memory sale.

Toshiba decided June 21 to prioritize talks with a consortium of the public-private Innovation Network Corp. of Japan, the state-backed Development Bank of Japan, and U.S. firm Bain Capital. South Korean chipmaker SK Hynix is also participating. The conglomerate had hoped to have an agreement in hand before a June 28 shareholders meeting, but the sale still remains to be finalized.

Concluding the deal is taking time, Toshiba told the lenders. In addition to the time-intensive process of hashing out all the details in the paperwork, debate rages even within the consortium over SK Hynix's role. The chipmaker was originally envisioned as just providing financing but now seeks a path to voting rights, possibly complicating antitrust reviews and heightening the risk of Toshiba technology leaving Japan.

Toshiba, apparently forced to confront the possibility that it could fail to reach an accord, told banks that it has reopened talks with Western Digital and Hon Hai Precision Industry, known as Foxconn, which have also tendered bids. Western Digital, which works with Toshiba on flash memory production, submitted a joint offer with Kohlberg Kravis Roberts that also involves INCJ and DBJ.

The Japanese company is scrambling to unload the memory unit before its fiscal year ends in March 2018. Toshiba's liabilities exceeded its assets at the end of fiscal 2016 after massive losses on its U.S. nuclear operations. Two consecutive years of negative shareholders' equity is grounds for delisting from the Tokyo Stock Exchange.

Since the conglomerate has made no legally binding commitments on preferred negotiating rights, it is free to re-examine other bids while continuing to prioritize talks with the Japan-U.S. team.

Complicating matters is litigation with Western Digital, which insists that transferring the memory operations without its consent would run afoul of joint-venture agreements. The American hard-drive manufacturer filed in May to take Toshiba to arbitration and filed suit in a California court last month, seeking an injunction against the sale. A hearing on the latter is scheduled for Friday, with an injunction possibly granted as early as that day.

Now ahead of this, the California court on Tuesday local time, gave a temporary court order which says Toshiba must stop prohibiting Western Digital's employees to access their shared databases related to the joint flash memory venture.

Western Digital had taken Toshiba to court separately, seeking an injunction against the sale of the memory unit. Now, with the temporary court order, Toshiba must take measures on the matter by Wednesday, according to Western Digital.

Meanwhile, regarding the injunction, Toshiba assured the banks that such a development would not stop it from doing the paperwork for the sale and asked for continued financial support.

Though major lenders remain willing to aid the beleaguered giant, they are taking on a heavier burden in doing so. Regional banks decided not to roll over nearly 100 billion yen ($875 million) in short-term loans as they came due at the end of March.

Key lenders are also wary of providing more credit. The conglomerate told banks in April that it would need as much as 1 trillion yen in additional loans this fiscal year for capital spending and debt repayment. It requested hundreds of billions of yen in financing Tuesday, beyond the 680 billion yen in credit lines that banks have already extended. But lenders will find this tough to swallow until prospects for the Toshiba Memory sale become clearer.

(Nikkei)

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