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Western Digital offers compromise on Toshiba Memory deal

In lieu of direct contribution, US hard-drive maker seeks rights to more chips

TOKYO -- Western Digital has put forward a new offer for Toshiba's flash memory arm that would give the American company less of a direct voice in management in exchange for a larger share of chip output, sources told the Nikkei. 

Under the new proposal, other members of Western Digital's consortium -- mainly U.S. investment firm Kohlberg Kravis Roberts, the public-private Innovation Network Corp. of Japan and the government-backed Development Bank of Japan -- would acquire Toshiba Memory. The purchase price would likely remain around 2 trillion yen ($18.3 billion), with major Japanese banks providing financing.

Western Digital, meanwhile, would not contribute roughly 150 billion yen as originally planned. Instead, the American hard-drive maker has asked to buy some chip production capacity at fabrication facilities in Yokkaichi, Japan, in which it jointly invests with Toshiba.

The joint venture agreements governing the Yokkaichi facilities stipulate that output is allocated based on ownership of production equipment, which has been split roughly 60-40 in Toshiba's favor since 2009. Western Digital seeks to bring this to 50-50. With memory supply tight, the company probably decided to increase its share of output directly instead of investing directly in Toshiba Memory.

This arrangement became a source of friction in early August, when Toshiba said it would invest unilaterally in equipment at a new Yokkaichi fab. Western Digital objected, fearing it would lose access to cutting-edge memory, and insisted that the Japanese conglomerate abide by the existing joint investment framework.

The alternative acquisition proposal is also intended to help the deal pass more easily through antitrust review. But Western Digital has apparently not given up on its demand for eventual voting rights in the memory unit. How regulators might respond is difficult to say.

Toshiba executives are expected to meet Wednesday to discuss the new proposal. The company is also considering bids from Taiwan's Hon Hai Precision Industry and an American-Japanese-South Korean consortium including investment firm Bain Capital and chipmaker SK Hynix.

Toshiba must complete the sale within the fiscal year ending next March to fill the massive hole in its finances left by losses on U.S. nuclear operations, or else risk being delisted from the Tokyo Stock Exchange. With lenders breathing down its neck as well, the conglomerate decided in late August to prioritize talks with the Western Digital camp.


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