No breakthrough for Toshiba, Western Digital on memory unit sale

Andrew Cummings
August 31, 2017

Toshiba is racing to finalize the sale and clear antitrust screenings at home and overseas to raise money that would cover huge losses from its now-bankrupt USA nuclear power unit, Westinghouse Electric Co.

At its board meeting earlier in the day, Toshiba was expected to agree to enter exclusive talks with the consortium, which includes USA private equity firm Kohlberg Kravis Roberts, the private-public fund Innovation Network Corp. of Japan and the Development Bank of Japan.

A third consortium includes Western Digital, Toshiba's US-based chip factory partner, which has tried to block any sale to a third-party in court.

By taking part in the bidding, Apple could help ensure a competitive supply chain and lessen its dependence on the chip division of Samsung, a key rival in the smart phone business.


Sources familiar the matter have said talks with Western Digital were in final stages but the two sides were struggling to come to an agreement over the USA company's future stake in the business.

Frayed trust and wasted time may mean that both Toshiba and Western Digital, the world's No. 2 and No. 3 NAND flash memory producers, would fall further behind industry leader Samsung Electronics, which is pouring billions of dollars into production upgrades to stay ahead.

The company's emphasis towards deadlines is grounded on a desire to close the chip sale by March next year, in a bid to avoid reporting negative net worth, which could result in potentially delisting from the Tokyo Stock Exchange. Rather than take an equity stake, the United States company may provide money by pre-paying for chip supplies in the future, a standard practice in the industry that Apple has used in the past to give suppliers financial support.

Bain's revised bid was first reported by Japanese broadcaster NHK which said it would be structured so that Bain and Toshiba would each hold 46 percent of the unit.


The revised offer is worth some 2 trillion yen (US$18.2 billion).

METI's support for Western Digital may be because the government officials don't understand several finer contractual issues, said one of the people. For now, Western Digital plans to invest only through convertible bonds.

Toshiba has requested such an aggregate cap, but Western Digital has resisted that term. For example, Toshiba and Western Digital have agreed - if they strike a deal - to eventually take Toshiba Memory public and give majority ownership to the Japanese members of the consortium, INCJ and the DBJ.

About 10 reporters staked out Toshiba's headquarters Thursday morning as the board meeting began.


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