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Business

No breakthrough for Toshiba, Western Digital on memory unit sale

Embattled Japanese conglomerate keeps talks open with three rival bidders

TOKYO -- Toshiba failed to achieve a breakthrough Thursday over the possible sale of its flash memory business to a consortium involving U.S. hard drive maker Western Digital.

The struggling Japanese conglomerate said in a statement the same day that it will continue talks with three rival bidders, including the Western Digital group.

At its board meeting earlier in the day, Toshiba was expected to agree to enter exclusive talks with the consortium, which includes U.S. private equity firm Kohlberg Kravis Roberts, the private-public fund Innovation Network Corp. of Japan and the Development Bank of Japan. The group is offering 2 trillion yen ($18.1 billion) for Toshiba Memory.

Instead, Toshiba issued a short statement announcing that it will continue talks with all three bidders, meaning it will therefore miss the end-of-September deadline for a deal set by its creditor banks.

The board session follows top-level negotiations between Toshiba President Satoshi Tsunakawa and Western Digital CEO Steve Milligan earlier this week.

Despite the limbo, there has been some progress on the terms of a possible sale. For example, Toshiba and Western Digital have agreed -- if they strike a deal -- to eventually take Toshiba Memory public and give majority ownership to the Japanese members of the consortium, INCJ and the DBJ.

But sticking points remain. Western Digital, for example, wants to eventually raise its stake in the unit to roughly a third, but there appears to be disagreement about the timeline.

Still in the mix

Meanwhile, rival bidders are making a last-ditch attempt to snatch a deal.

A U.S.-Japanese-South Korean team led by Bain Capital presented Toshiba with a new offer this week that brought tech giant Apple into the mix. At the same time, Taiwan's Hon Hai Precision Industry is teaming with Japan's SoftBank Group and Google on a bid of its own.

Western Digital, which partners with Toshiba in flash memory production, has taken legal action to block the sale of the unit, arguing that a sell-off would be against the terms of their joint-venture agreement.

Toshiba is being forced to part with the profitable memory unit, its crown jewel, after reporting a loss of 966 billion yen for the fiscal year ended in March. The loss stemmed from a $6.3 billion write-down on its U.S. nuclear business, Westinghouse Electric, which filed for Chapter 11 bankruptcy protection in the U.S. in March. Toshiba ended the fiscal year with a shareholders equity of negative 552.9 billion yen.

The company is keen to sign an agreement by the end of September so that the regulatory screening procedures can be carried out in time for the transaction to be completed by the end of March, when the current fiscal year ends.

Failure to sell the unit would likely leave the company with a capital deficit for the second straight year, causing it to be delisted from the Tokyo Stock Exchange.

Toshiba's main creditor banks have made it clear that their continued financial support is contingent on the company maintaining its Tokyo listing.

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