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Toshiba to map out endgame of Western Digital feud

The future fate of Toshiba Memory shares remains a major sticking point

Toshiba seeks to complete a roughly 2 trillion yen sale of Toshiba Memory to firm up its finances by next March.

TOKYO -- Top executives at Toshiba will meet Wednesday to discuss settling a legal dispute with Western Digital that has threatened to derail the Japanese conglomerate's plan to sell its flagship memory business.

While negotiations with Western Digital are believed to be at the final stages, a few sticking points remain. Toshiba's directors will discuss ways to resolve them at the morning meeting. The company has been stepping up talks with the American chipmaker, with a top executive traveling to the U.S. just last week.

The biggest concern for Western Digital is the fate of the shares of the newly formed memory unit. American private equity firm Bain Capital, which leads the international consortium purchasing the business, plans to float Toshiba Memory shares in three years at the earliest.

Bain wishes to retain the option to unload Toshiba Memory onto rivals like South Korea's Samsung Electronics to ensure it can sell at a price higher than the purchase cost even during a downturn in the semiconductor market.

Western Digital, naturally, is not keen on the prospect of Samsung or other principal competitors gaining equity in Toshiba Memory. The chipmaker wants Toshiba to restrict the consortium's ability to transfer shares.

In addition, Western Digital is apparently seeking assurance that SK Hynix, the South Korean member of the consortium and another chip rival, will not have access to technological data from Toshiba Memory.

Toshiba, Bain and Western Digital are also apparently discussing the financing terms put forward by Toshiba Memory's Japanese lenders as they could affect the structure of the future tie-up.

Will they mend fences?

If and when Western Digital resolves its differences with Toshiba and withdraws its arbitration petition, the U.S. group should resume its joint investment in the partner's Japanese chipmaking complex in Yokkaichi, Mie Prefecture. Toshiba will pick up 60% of the costs while Western Digital will pay the rest of the tab. That investment ratio will also be reflected in the memory product's procurement split.

The two sides are considering a joint investment for a new flash memory production site in Kitakami, Iwate Prefecture, due to begin production in 2021 or later. Toshiba plans to unilaterally invest if the Toshiba Memory dispute cannot be resolved.

Toshiba and Western Digital are operating under the deals the Japanese group signed with U.S. memory company SanDisk, which was bought out by Western Digital last year. If a resolution is reached, the plan is for Toshiba Memory to update its contracts with Western Digital.  

The three joint venture arrangements are due to expire starting in 2021, but both parties largely agree on extending those periods to 2029.

No deal, no new memory chips

Toshiba agreed to sell Toshiba Memory to the consortium of buyers from Japan, the U.S. and South Korea, with the aim of completing the sale by the end of next March. But Western Digital's bid to halt the process through the International Court of Arbitration threatens to thwart those plans.

Toshiba has been urging Western Digital to withdraw its suit, using their joint investment in the Yokkaichi complex as a bargaining chip.

The site is Western Digital's sole memory procurement source. Toshiba is also spending additional funds on Yokkaichi's latest production facility. If Western Digital fails to join that round of investment, it may lose access to top-of-the-line memory products.

Toshiba will allow Western Digital to chip in only if it resolves the Toshiba Memory dispute. In response, the U.S. partner has been gradually easing its hard-line posture and working toward a solution. 

Meanwhile, Toshiba announced Tuesday that it has completed its roughly 600 billion yen ($5.32 billion) capital increase through a share offering, which would enable it to climb out of negative shareholder equity for the current fiscal year. But selling Toshiba Memory will further shore up its brittle finances.

(Nikkei)

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