Western Digital launches arbitration proceedings against Toshiba with the International Chamber of Commerce

The move is essentially a pressure tactics.

U.S.-based Western Digital Corp has taken legal action to potentially derail Toshiba’s sale of its chip manufacturing business with its application of international arbitration.

Western Digital Corp wants to stop its partner, Toshiba Corp, from selling its chip manufacturing business without its consent.

This will impact Toshiba’s attempt to inject cash into its operations.

As per a source with direct knowledge of the matter at hand, although the two companies jointly operate Toshiba’s main semiconductor plant, Toshiba does not see Western Digital as its favored bidder since it has put a much lower offer than other suitors.

The legal battle that is likely to ensue will not only delay the potentially $18 billion but could also put an end to it.

For Toshiba, the deal is critical since it aims to offset the proceeds of the deal with the writing down of its bankrupt U.S. nuclear unit Westinghouse. Furthermore, this legal action will also jeopardize its listing on the Tokyo Stock Exchange, since it needs fresh funds to shore up its balance sheet.

On Monday, Toshiba had released its unaudited earnings for the year at $8.4 billion (950 billion yen), a net loss and negative shareholder equity worth 540 billion.

Essentially Western Digital is demanding that Toshiba reverse a move to put its joint venture assets into a hived out entity – Toshiba Memory – and that it stop an all-out sale without consent from Western Digital unit SanDisk.

Toshiba has argued that under the terms of the joint venture contract, neither of the two can block a change of control by the other partner. Citing Western Digital’s acquisition of its joint venture interest when it acquired SanDisk, Western Digital never sought and received Toshiba’s approval for the same.

As per Western Digital, Toshiba cannot transfer the joint venture’s interests into an affiliate and then sell the affiliate without its consent.

“Seeking relief through mandatory arbitration was not our first choice in trying to resolve this matter. However, all of our other efforts to achieve a resolution to date have been unsuccessful, and so we believe legal action is now a necessary next step,” said Steve Milligan, Western Digital’s CEO in a statement.

While the Japanese government has proposed that Western Digital join their consortium as a minority investor, Western Digital said, it needs to take control of the unit in order to be fully in charge of operations, said multiple sources familiar with the matter at hand.

($1 = 113.3 yen)

 

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