Bain group wins Toshiba chip battle
TOKYO • Toshiba Corp.’ s board agreed to sell its flash memory chip unit to a group led by Bain Capital for 2 trillion yen ( US$ 18 billion), taking an important step toward ending a contentious bidding process that has stretched over eight months.
The Bain consortium i ncl udes backing f r om Japanese and overseas companies, including Toshiba, which will reinvest 350.5 billion yen, the company said in a statement. Apple Inc., Dell Inc., SK Hynix Inc. and Japan’s Hoya Corp., will provide financial support, according to people familiar with the situation. The iPhone maker played a crucial role in swinging momentum in the tumultuous auction to the Bain offer.
Apple is i nterested in the chip unit because of the strategic importance of flash memory. The compact chips are essential for its iPhones and i Pods, storing every photo, video clip and animoji. Only a handful of companies make the highest-end technology and the dominant player is Samsung Electronics Co. The last thing Apple chief executive Tim Cook wants is to end up dependent on his archrival in smartphones.
Toshiba is selling off its chips business to pay for billions of dollars in losses in its U.S. nuclear business. The company needs to raise the money by March to avoid seeing its shares de-listed from the Tokyo Stock Exchange.
The auction has been complicated by l egal action from Western Digital Corp., which has argued it should have veto rights in any sale because of its partnership with Toshiba in the chips business. The Japanese company disputes that and sued Western Digital for more than US$ 1 billion for interfering in the auction.
Western Digital has sued in court and filed for arbitration in California to make its case. As part of Wednesday’s agreement, Bain agreed to complete a deal regardless of the legal challenges. Shares of Western Digital fell as much as 5.5 per cent Wednesday to US$ 85 in early trading in New York.
If the dispute with Western Digital is unresolved at closing, three joint ventures between Toshiba and Western Digital would not be transferred to Bain and the purchase price would be adjusted, said one of the people, asking not to be identified because the matter isn’t public. The joint ventures are worth less than five per cent of the chips unit, the person said.
The Bain- led group was identified as a preferred bidder almost three months ago, but the process has been delayed by the lawsuits, government opposition and corporate indecision. Toshiba chose Bain over a group led by KKR & Co. and two statebacked funds, Innovation Network Corp. of Japan and Development Bank of Japan. Western Digital had originally been part of the KKR group, but agreed to withdraw because of opposition from Toshiba.
Toshiba’s board agreed to the Bain proposal Wednesday. Bain, Toshiba, SK Hynix and Japan’s Hoya will pay about 960 billion yen for common and convertible stock, while Apple, Dell, Kingston Technology Co. and Seagate Technology PLC will spend about 440 billion yen for convertible and non- convertible preferred stock, a person familiar with the matter said.
This week, KKR and INCJ worked on a revised bid, with the Japan fund taking a more prominent role and planning an initial investment of about 550 billion yen, up from the previous 300 billion yen, people familiar with the matter said. Under the revised proposal, Toshiba could buy back equity from INCJ and DBJ later, the people said.
Bain then revised its off er, t oo. The U. S. buyout firm sought more support from Apple, asking f or about US$ 7 billion, up from a previous agreement for about US$ 3 billion, said a person familiar with the matter.
It’s not clear how much Apple will ultimately contribute.