Western Digital staff loses access to facilities as dispute escalates

TOKYO: Toshiba Corp is moving to block Western Digital Corp employees from the flash-memory venture they share, after a threat of legal action loomed over the increasingly bitter dispute over who gets to buy the Japanese company’s chip unit.

Western Digital invoked an arbitration clause in their business agreement, which could postpone a sale.

Toshiba would go forward with plans to shut out Western Digital’s workers from its flash memory facilities in Yokkaichi in central Japan as well as digital access to its networks, said people familiar with the matter.

The escalating standoff between the companies over the chip sale could imperil Toshiba’s plans to use cash from the divestment to plug a hole in its balance sheet from a massive loss in its nuclear power business.

The United States disk drive maker fears the operations may fall into the hands of competitors, even though it probably doesn’t have the financial wherewithal to buy the unit itself.

At the same time, Toshiba needs to sell the chips business soon to avoid posting negative shareholder equity for two straight years.

“Toshiba’s memory business is very appealing and has attracted a lot of potential buyers,” said Hideki Yasuda, an analyst at Ace Research Institute. “But Western Digital, just coming out of a major acquisition itself, simply can’t afford it.”

Earlier this month, Toshiba said Western Digital still had not signed a revised contract after becoming its flash memory manufacturing partner through the acquisition of SanDisk Corp last year — and that it must comply by yesterday.

It’s not clear how many Western Digital employees would be affected; SanDisk workers would continue to have access.

In preparation for the divestment, Toshiba transferred ownership of the memory unit to a separate legal entity, but didn’t get permission before doing so, according to Western Digital. The two should enter binding arbitration to resolve the dispute, it said.

“Toshiba’s attempt to spin out its joint venture interests into an affiliate and then sell that affiliate is explicitly prohibited without SanDisk’s consent,” said Western Digital chief executive officer Steve Milligan.

Toshiba said it hadn’t received any notice of arbitration, and rejected claims that the process was in breach of the joint venture agreement. Bloomberg

Toshiba’s memory business is very appealing and has attracted a lot of potential buyers... but Western Digital simply can’t afford it.