Tricky path ahead for Toshiba on chip sale
US bid apparently comes in at nearly $18bn; Tokyo said to favor American buyer
TOKYO -- With shareholder approval gained and the first round of bidding complete, Toshiba is set to begin the difficult process of negotiating a sale of its memory chip operations that meets its financial needs while addressing government security concerns.
U.S. private-equity firm Silver Lake Partners and American chipmaker Broadcom, part of the firm's portfolio, apparently tendered a roughly 2 trillion yen ($17.9 billion) bid. That is on the high end of estimates of the memory business' value.
Shareholders greenlighted a spinoff of the business, to be called Toshiba Memory, at an extraordinary meeting Thursday. The Japanese conglomerate plans to sell a majority stake in the new entity to fill the hole in its finances left by nuclear unit Westinghouse Electric's bankruptcy filing.
Toshiba is the world's second-largest memory chip manufacturer by market share, behind only Samsung Electronics, so the sale has drawn keen interest. Around 10 bidders -- including peers such as U.S.-based Western Digital, a hard-drive maker that partners with Toshiba on memory, and South Korea's SK Hynix -- have stepped forward.
Silver Lake likely anticipates synergies with tech group Dell Technologies, another of its investment holdings, while Broadcom is after chips for commercial telecommunications equipment.
Security issues will complicate the sale. Toshiba memory chips are used in solid-state drives that store classified information protected with advanced encryption. Tokyo worries that ceding this technology to a foreign company could lead to leaks of military or diplomatic secrets.
Any proposed investment in Toshiba Memory by a foreign enterprise would need to undergo a government review. The Ministry of Economy, Trade and Industry apparently would prefer an American buyer, given the security alliance between the countries. The two deciding factors will be avoiding technology outflows and ensuring growth at Toshiba's chipmaking facilities in Yokkaichi, Japan, a senior ministry official said.
While the details of Toshiba's turnaround are still being hashed out, the ministry plans to seek support from the government-backed Development Bank of Japan and the public-private Innovation Network Corp. of Japan.
Toshiba will begin negotiating with individual candidates next month, covering such issues as leak prevention and protecting jobs, before launching a second round of bidding. Toshiba will also seek to confirm whether prospective buyers intend to resell their stake eventually. The company hopes to pick a winning bid before the general shareholders meeting in late June, a senior executive said.
Toshiba expects its liabilities to exceed its assets by roughly 620 billion yen when the current fiscal year ends Friday. After taking taxes into consideration, Toshiba would need to earn 1 trillion yen from the sale to bring its net worth back into positive territory. Assuming the memory operations' net assets are worth 500 billion yen to 600 billion yen, the business would need to sell for around 1.5 trillion yen for Toshiba to net 1 trillion yen.