Toshiba picks group as buyer of chip unit

TOKYO: Toshiba Corp has decided to sell its chip unit to a Japan-US-South Korean consortium for around 2.4 trillion yen ($21 billion), rejecting a counterbid from its longtime partner Western Digital Corp, sources close to the matter said yesterday.

Toshiba made the decision at a board meeting to sell Toshiba Memory Corp to the consortium led by US fund Bain Capital that it had signed a memorandum with last week to speed up talks on the sale. Toshiba will negotiate exclusively with the group to quickly seal a deal.

The consortium also includes the state-backed Innovation Network Corp of Japan, the Development Bank of Japan, South Korean chipmaker SK Hynix Inc and four US technology firms — Apple Inc, Dell Inc, memory product maker Kingston Technology Corp and data storage company Seagate Technology Plc.

Toshiba is selling Toshiba Memory to make up for the huge losses stemming from its now-bankrupt US nuclear unit by next March and avoid reporting negative net worth for a second straight year that would see it face delisting from the Tokyo Stock Exchange.

The decision comes after board members also considered a revised offer made at the last minute by a group led by Western Digital, which jointly invests in Toshiba’s Yokkaichi flash memory plant.

While some board members had apparently expressed support for Western Digital’s proposal, it was eventually rejected as many in the company could not overcome their distrust of the US firm following a legal dispute between the two companies over the sale of the chip unit, the sources said.

Ties between the two companies had soured after Western Digital took Toshiba to court claiming that the unit’s sale without its consent would breach their joint venture contract.

The main focus of talks between Toshiba and the Japan-US-South Korean group had been how to handle the legal challenges posed by Western Digital.

In its offer, the group said that Bain Capital and SK Hynix would shoulder costs to settle the legal dispute with Western Digital, the sources said.

The consortium and Toshiba also agreed to keep the ratio of SK Hynix’s voting rights low in the chip unit in the future in order to avoid antitrust issues.

The group also made a proposal that the INCJ and DBJ would invest in Toshiba Memory once the legal dispute is resolved, while Bain Capital and others in the group would pay for the investment by the two Japanese entities.

But Toshiba still needs to figure out ways to quickly reach a settlement with Western Digital as the sale could still be blocked if the legal spat continues.

In its last-minute offer, the Western Digital group said it would give up seeking voting rights in the chip unit after initially demanding more than onethird of the rights to gain veto power, the sources said.

The decision by Toshiba could end months of confusion and speculation among investors and other stakeholders.

The crisis-hit company initially picked the Japan-US-South Korea consortium as a preferred bidder, and aimed to clinch a deal with it by the end of June. But after their talks stalled, Toshiba turned to Western Digital.

At one point, Toshiba and Western Digital even reached a broad accord. However, their negotiations soon hit a snag as the US company started seeking voting rights at the chip unit, prompting Toshiba again to focus on negotiations with the consortium and sign a memorandum of understanding with it.