Toshiba in a chip of trouble

Western Digital has warned Japan’s Toshiba that splitting off its chip unit prior to a planned sale of the business violates their joint chip venture contract and that it wanted to enter into exclusive talks.

In a strongly worded letter dated 9 April, Western Digital which operates a chip plant with Toshiba in Japan, said the split-off is a “very serious breach of joint venture agreements,” and it would not sit idly by while Toshiba “runs roughshod” over its rights.

The letter, however, did not threaten legal action.

The objection is likely to complicate the sale of the prized unit — the world’s second-biggest producer of NAND chips which Toshiba has valued at around $ 18 billion. The sale is essential to Toshiba’s plans to cover writedowns at US nuclear unit Westinghouse that have plunged it into crisis.

A spokeswoman for Toshiba was not immediately available to comment.

The California-based company also said the auction process was not in the best interests of Toshiba stakeholders and that it wanted to enter into exclusive talks with the Japanese conglomerate.

Rumored bids of between 2 trillion yen to 3 trillion yen ($ 18 billion to $ 27 billion) were well above the fair and supportable value of the chip business, it added in the letter which was sent by CEO Stephen Milligan and ad- dressed to Toshiba’s board of directors.

Western Digital also said that each of the rumored bidders are highly problematic for both Japan and the joint ventures and specifically named Broadcom, saying that it had grave concerns based on recent commercial dealings with them.

A representative for Broadcom was not immediately available for comment.

Broadcom, which has partnered with US private equity firm Silver Lake Partners LP, is among the four bidders that Toshiba is currently considering after narrowing the field of suitors, sources with knowledge of the matter said.

The other bidders are Western Digital, South Korea’s SK Hynix and Taiwan’s Foxconn, they added, declining to be identified as they were not authorized to speak on the matter publicly.

Foxconn, formally known as Hon Hai Precision Industry, has offered up to 3 trillion yen for Toshiba’s chip business, the Wall Street Journal has reported.

Despite the size of the bid, Foxconn is not seen as a frontrunner as the Japanese government has vowed to vet bidders and block a sale to investors it deems a risk to national security. Foxconn is considered such a risk because of its deep ties with China. REUTERS