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Nikkei Markets

Toshiba Shareholders Approve $17.5Bn Memory Unit Sale - Nikkei Asian Review

By Kentaro Iwamoto
Nikkei Staff Writer
TOKYO (Oct 24) -- Toshiba shareholders, at an extraordinary meeting on Tuesday, approved the company's proposed sale of its flash memory subsidiary, Toshiba Memory, to a consortium led by Bain Capital for 2 trillion yen ($17.5 billion).

The deal is aimed at cutting massive debts at the Japanese conglomerate brought on by losses at its U.S. nuclear business. As of July 31, Toshiba's shareholder equity stood at minus 552 billion yen.

But completion of the deal by next March -- essential if Toshiba is to erase that deficit and keep its listing on the Tokyo Stock Exchange -- is not guaranteed. It is locked in a legal battle with U.S. partner Western Digital, which is opposed to the sale of the memory unit.

Tuesday's shareholders meeting follows Toshiba's announcement on Sept. 28 that it had agreed on the sale of Toshiba Memory to a consortium of U.S., South Korean and Japanese investors.

Toshiba President Satoshi Tsunakawa and senior executives began the meeting by bowing to shareholders. "We apologize from the heart for making shareholders and stakeholders worry," Tsunakawa said.

One shareholder in his 50s told The Nikkei on Tuesday morning: "I hope Toshiba finalizes the memory sales as soon as possible and earnestly works hard."

Legal tangle

But despite getting the OK from shareholders, the sale of Toshiba Memory is not a done deal. Western Digital is seeking a court order to block it.

Western Digital and Toshiba Memory have a joint venture that owns production equipment at Toshiba's flagship chip plant in Yokkaichi, in central Japan. The U.S. hard-drive manufacturer claims that transferring Toshiba's interest in the venture without its consent violates the terms of their agreement. In essence, Western Digital is claiming a veto right over the sale of Toshiba Memory.

Western Digital filed a request for arbitration with the International Chamber of Commerce's arbitration court in May seeking to block the sale.

At a news conference on Oct 5, Yuji Sugimoto, Bain Capital's representative in Japan, tried to smooth ruffled feathers, saying, "Western Digital is a very important joint venture partner and will remain so going forward." The two sides are looking for ways to resolve the dispute amicably, rather than fighting the matter out in court, he said.

The memory unit deal also faces scrutiny from antitrust authorities in several markets, including South Korea, China and Brazil. These investigations will take time.

Tsunakawa reiterated during the meeting that the company aims to complete the sale by the end of March. Asked by a shareholder what alternatives Toshiba has if fails to meet the deadline, Tsunakawa said, "We are considering that."

Ahead of the shareholders meeting, Toshiba on Monday announced the company will pay 340 billion yen in taxes on the gain from the sale of the memory unit. The tax bill is expected to erase Toshiba's earlier forecast for a 230 billion yen profit this fiscal year, leaving it with a 110 billion yen net loss. But even after factoring this in, Toshiba said, the sale of the memory unit will leave it with positive shareholder equity.

Assuming the sale goes ahead, Toshiba's biggest task will be coming up with a growth strategy in the absence of its profitable memory business. On Monday, Toshiba said it will cut the number of executive officers from 23 to 15, starting Nov. 1, in hopes of speeding up decision-making.

Toshiba is making a big bet on the internet of things, a network of web-enabled devices. The company will increase staffing at its IoT business by 50% to 1,500 in the next two years.
- By Kentaro Iwamoto, Nikkei Staff Writer
- Nikkei Asian Review
- Send Feedback to feedback@nikkeinewsrise.com
- Copyright (c) 2017 Nikkei NewsRise Asia Pte Ltd.

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