Western Digital Wants Exclusive Chip Talks, Warns Toshiba Over Breaching Contract

Western Digital Corp has said that it wanted to enter into exclusive talks with Japan’s Toshiba Corp as the former warned the later that splitting off its chip unit prior to a planned sale of the business violates their joint chip venture contract.

The split-off is a “very serious breach of joint venture agreements,” and it would not sit idly by while Toshiba “runs roughshod” over its rights, said Western Digital which operates a chip plant with Toshiba in Japan in a strongly worded letter dated April 9.

However, no legal action was mentioned about in the letter.

Toshiba has valued the world’s second-biggest producer of NAND chips at around $18 billion and the objection is likely to complicate the sale of that prized unit of Toshiba. In order to cover write-downs at U.S. nuclear unit Westinghouse that have plunged it into crisis., this sale is essential to Toshiba’s plans.

A spokeswoman for Toshiba was not immediately available to comment.

The California-based company said that it wanted to enter into exclusive talks with the Japanese conglomerate ad also added that the auction process was not in the best interests of Toshiba stakeholders.

It added in the letter which was sent by CEO Stephen Milligan and addressed to Toshiba’s board of directors that rumored bids of between 2 trillion yen to 3 trillion yen ($18 billion to $27 billion) were well above the fair and supportable value of the chip business.

Specifically naming Broadcom Ltd. and saying that it had grave concerns based on recent commercial dealings with them, Western Digital also said that each of the rumored bidders are highly problematic for both Japan and the joint ventures.

A representative for Broadcom was not immediately available for comment.

Sources with knowledge of the matter have earlier told the media that among the four bidders that Toshiba is currently considering after narrowing the field of suitors, Broadcom, which has partnered with U.S. private equity firm Silver Lake Partners LP, is one.

Declining to be identified as they were not authorized to speak on the matter publicly the sources had added that the other bidders are Western Digital, South Korea’s SK Hynix and Taiwan’s Foxconn.

The Wall Street Journal has reported that up to 3 trillion yen ($27 billion) for Toshiba’s chip business had been 0ffered by Foxconn, formally known as Hon Hai Precision Industry.

But since the Japanese government has vowed to vet bidders and block a sale to investors it deems a risk to national security, Foxconn is not seen as a frontrunner despite the size of the bid. Foxconn is considered such a risk because of its deep ties with China.

Toshiba has said it is selling most or even all of the chip business. ($1 = 109.7100 yen) and is expecting to book an annual net loss of 1 trillion yen ($9 billion) for this business year on a writedowns at Westinghouse.



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