To Safeguard National Security Risks, Toshiba Bidders To Be Vetted by Japan: Reuters

The Japanese government is prepared to block a sale to bidders it deems a risk to national security with respect to the sale of  Toshiba Corp’s flagship memory chips unit, reported news agency Reuters quoting sources.

The sources further said that this would give a major advantage to U.S. suitors.

Sources said that if needed, Japan’s foreign exchange and foreign trade laws would be used b the government to control the auction. The sources declined to be identified because it is not public and are directly involved in the sale process, according to Reuters.

“The United States is the only feasible partner from Japan’s national security standpoint,” said another source, noting that cutting-edge chips are at the heart of robotics, artificial intelligence and connected devices.

Toshiba is rushing to sell most or even all of the unit – world’s second-biggest NAND chip producer – which it values at at least $13 billion seeking to plug an upcoming $6.3 billion writedown for its U.S. nuclear unit Westinghouse and create a buffer for future potential losses.

The Japanese industrial conglomerate is also leaning towards U.S. suitors given the potential for friction with the United States with Westinghouse woes deepening to the point of it hiring bankruptcy lawyers to explore a possible Chapter 11 filing.

“It’s obvious U.S. players are more suitable bidders,” a Toshiba executive said. “We’ll probably need to fight over Westinghouse (with the U.S.), so we could cooperate over chips in exchange.”

Sources have previously said that rival Micron Technology Inc and financial investors like Bain Capital and data storage firm Western Digital which operates a Japanese chip plant with Toshiba are included in the list of U.S. suitors.

Others including TSMC, the world’s biggest contract chip manufacturer, Taiwan’s Foxconn, the world’s largest contract electronics maker, and South Korean chipmaker SK Hynix Inc, would be left out if the U.S. suitors are preferred.

While SK Hynix has said it is considering an offer, only Foxconn has publicly said it plans to bid.

Sources with knowledge of the matter have said that Japan is concerned the firesale could hand key capabilities to rival China.

Government permission has to be obtained in advance for an overseas company looking to buy a Japanese company with technology considered key to national security under Japan’s Foreign Exchange and Foreign Trade Act.

Financial sources said that since optical technology is also used in military equipment, the law deterred foreign suitors from bidding to buy a stake in medical equipment and camera maker Olympus Corp in 2011  even though the law has been rarely otherwise.

When asked if Toshiba’s memory chips would be considered sensitive technology, Japanese Trade Minister Hiroshige Seko at a parliamentary committee on Wednesday declined to comment.

Law firm Weil Gotshal & Manges LLP have been brought in as an exploratory step by Westinghouse, hit by huge cost overruns at two U.S. projects, but no decision has yet been taken on a bankruptcy filing, Reuters had earlier reported quoting people familiar with the matter.

In order to free it up to report up to date earnings, the company should decide in the coming weeks whether to file for Chapter 11 bankruptcy, Japan’s finance minister said on Friday.

(Adapted from Reuters)

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