May 15, 2017 1:28 pm JST

Western Digital requests court block Toshiba chip-unit sale

Lengthy arbitration process could slow rehabilitation plans

A Toshiba chip fabrication facility in Yokkaichi, Japan.

TOKYO -- A dispute between Toshiba and its U.S. partner Western Digital over the planned sale of Toshiba's memory chip unit has now been taken to court.

Western Digital on Sunday filed a request to the International Court of Arbitration of the International Chamber of Commerce to stop Toshiba's attempts to sell the unit. A ruling is likely to take some time. A delay to the sale, however, could deal a blow to Toshiba's restructuring plans.

The critical state Toshiba finds itself in largely stems from huge impairment losses posted from its nuclear operations in the U.S. To access enough funds for the rebuilding process, the company spun off its profitable memory chip unit in April, and is seeking to sell a stake in the business. Negotiations are currently underway with possible buyers. Western Digital, which jointly operates the unit's key Yokkaichi factory in Japan -- one of the world's largest memory chip factories -- has disagreed with selling to a third party.

According to a statement Western Digital issued Sunday, the company has asked the court to block the transfer and prevent Toshiba from further breaching anti-transfer provisions incorporated in their joint venture agreement.

In the statement, Western Digital chief executive Steve Milligan claims that attempts to reach a resolution with Toshiba "have been unsuccessful, and so we believe legal action is now a necessary next step."

Toshiba on Monday said it would decline to comment, having not received details of its American partner's request to the court. The company also said it understands there are no violations of what is stated in the joint venture agreement, thus it does not see any basis for Western Digital's claims.

Joint venture agreements are binding contracts under California law. They include provisions stipulating that sale of a joint business cannot be undertaken without the consent of each partner.

The two companies are at odds over interpretation of the change-of-control provisions outlining transfer of the chip company's contractual rights.

Toshiba claims that the provisions apply to their case: If a third party wants to buy stakes in the joint venture, consent of both Toshiba and Western Digital is not necessary.

Western Digital, however, argues that Toshiba Memory, the chip memory spinoff, is not subject to the provisions. The company went on to say that the spinoff itself constituted a violation of their contracts.

In the past, the company has demanded that Toshiba immediately halt sales proceedings. Western Digital has also demanded exclusive negotiating rights out of fear that sale of the business would alter the operational framework of the Yokkaichi factory.

Countering, Toshiba warned Western Digital that if it does not soften its stance by midnight on Monday, Toshiba would bar its employees from accessing the factory and database.

Toshiba has set a Friday deadline for the second round of bidding for sales of the memory chip business.

The bidders are in the final phase of valuating Toshiba assets, and are as follows: U.S. investment fund Kohlberg Kravis Roberts, public-private Innovation Network Corp. of Japan, Western Digital, South Korean chipmaker SK Hynix, U.S. chipmaker Broadcom and Taiwan's contract manufacturer Hon Hai Precision Industry, also known as Foxconn.

(Nikkei)

Asia300

SK hynix, Inc.

South Korea

Market(Ticker): KRX(000660)
Sector:
Industry:
Electronic Technology
Semiconductors
Market cap(USD): 53,404.83M
Shares: 728.00M
Asia300

Hon Hai Precision Industry Co., Ltd.

Taiwan

Market(Ticker): TAI(2317)
Sector:
Industry:
Electronic Technology
Computer Peripherals
Market cap(USD): 61,983.66M
Shares: 17,328.73M

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