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Inside a Toshiba semiconductor plant.
Business

Good price for memory business key to Toshiba turnaround

Company must keep cards close to chest despite desperate situation

| Japan

TOKYO -- Now that Toshiba has detailed plans to split off its semiconductor memory operations into a distinct company, its next challenge will be securing a price for the business that will offset heavy losses elsewhere and propel its turnaround.

The struggling Japanese conglomerate said Friday that effective April 1, its memory operations will be transferred to Toshiba Memory, a unit that was created on Feb. 10. Yasuo Naruke, the head of Toshiba's semiconductor business, will at that point become president of the memory spinoff.

Toshiba aims to find a buyer for a majority stake in Toshiba Memory early in the fiscal year beginning April 1 -- a departure from previous plans, which called for selling less than 20% of the unit. The diversified manufacturer has already begun soliciting bids. U.S. companies Western Digital and Micron Technology are expected to heed the call. South Korea's SK Hynix, Taiwan's Hon Hai Precision Industry and multiple foreign investment funds are thought to be weighing investments as well.

Memory operations are Toshiba's crown jewel: the company invented NAND flash memory, an indispensable building block of mobile devices, and holds the No. 2 global market share. But with time running out to mitigate enormous losses at its U.S. nuclear unit Westinghouse Electric, the company faces an increasingly fierce tug-of-war with potential buyers, trying to fetch a good price for the unit in a reasonable amount of time.

An emergency shareholders meeting will be called March 30 to seek approval for the spinoff and other proposals. Completing the sale by the March 31 end of fiscal 2016 is essentially impossible. If nothing significant changes, Toshiba will close out the fiscal year with a negative net worth of 150 billion yen ($1.33 billion).

Should this be the case, Toshiba' stock will be moved from the Tokyo Stock Exchange's first section to the second section on Aug. 1. But the company appears to be betting that it could secure a higher price for the memory spinoff if it takes as much time as allowed in selecting the buyer and lets bidders compete more.

Toshiba's nuclear operations are expected to book a 712.5 billion yen loss for the nine months ended last December. The company also sat on 793.4 billion yen in guarantees for Westinghouse's liabilities at the end of March 2016. In its efforts to get back on its feet, Toshiba is weighing a variety of options, including lowering its stake in Westinghouse or having the U.S. unit file for Chapter 11 bankruptcy protection.

It is clear Toshiba must prepare not only for substantial cash outflows due to the massive losses at Westinghouse, but also to cover some of its guarantees for the subsidiary's obligations. Toshiba has instructed parties interested in bidding for a stake to value the memory business at 2 trillion yen or more. Though proceeds will depend on how large a stake is sold off, the parent hopes to garner enough to cover losses at the nuclear business.

A buyer is expected to be chosen by the time Toshiba holds its annual shareholders meeting in late June. Still, the company cannot move too hastily, lest its desperation show.

(Nikkei)

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