Toshiba to push chips business
• Group aims to finalise deal to a Bain Capital-led crowd at a board meeting on Wednesday, sources say
Toshiba is aiming to finalise a deal to sell its memory chips business to a group led by Bain Capital at a September 20 board meeting.
Toshiba is aiming to finalise at a board meeting on Wednesday a deal to sell its memory chips business to a group led by Bain Capital, despite opposition from partner Western Digital, according to people familiar with the matter.
Toshiba’s effort faced resistance because the Bain group now included several Western Digital competitors including Seagate Technology, Kingston Technology and SK Hynix, said the people, asking not to be identified because the matter is not public.
Western Digital partnered with KKR & Co to try to buy the chips business, but Toshiba opted for the Bain bid last week, signing a memorandum of understanding as they work towards a final agreement. Toshiba has been in talks for months to sell its chips business and pay for a disastrous move into the US nuclear sector. It needs to raise the money by March to avoid a delisting from the Tokyo Stock Exchange.
The auction has been complicated by legal action from Western Digital, which 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 $1bn for interfering in the auction.
Toshiba’s board might not be able to reach a final deal this week and if not, would revisit the issue the following week, said one of the sources.
A Toshiba spokeswoman said on Sunday she could not comment on the details.
The KKR group, backed by Western Digital, was on the verge of winning the auction just weeks ago with support from Japan’s powerful ministry of economy, trade and industry, people familiar with the matter said at the time. Yasuo Naruke, head of the chips business, and several other top executives resisted the Western Digital proposal, the people said.
Apple helped swing momentum away from Western Digital by backing Bain’s effort. The iPhone maker is in talks to provide about $3bn for the bid. If the deal is completed, it may exceed Apple’s largest deal, the $3bn acquisition of Beats Electronics.
Apple is interested in the chip unit because of the strategic importance of flash memory.
Nand flash memory chips are among the most expensive components of the iPhone and the market for the chips is concentrated in the hands of just six suppliers, with rival Samsung Electronics holding more than 40%. For Apple, Toshiba’s 18% falling into the hands of another supplier would further narrow its options and make pricing negotiations tougher.
Western Digital had a 13% slice of the chips market in 2016 and SK Hynix accounted for a similar portion, according to researcher IDC.
Hynix would initially contribute only debt to the Bain group to minimise antitrust scrutiny, said one of the sources. The South Korean firm would have an option to buy about 15% of the unit later, the person said.