Toshiba Sues Western Digital, As It Misses Self-Imposed Deadline For Chip Unit Sale

By saying the $18 billion deal was being held up due to differences of opinion within the consortium chosen as preferred bidder, Japan’s Toshiba Corp has pushed back its timeline to clinch a sale of its prized flash memory chip unit.

One day after the U.S. firm Western Digital Corp resubmitted a bid for the unit, the conglomerate sued its chip business partner the U.S. firm for interfering in the sale and this was the cause of the delay. The lawsuit further complicates prospects for a deal and pushes acrimony between the two to new heights.

Toshiba had pledged to have a signed agreement for the sale of the unit – the world’s No. 2 producer of NAND chips – by Wednesday, while scrambling to cover billions of dollars in cost overruns at its bankrupt Westinghouse nuclear unit.

Chosen as preferred bidder but the group’s offer was only hastily and awkwardly put together this month is a consortium, led by Japanese government investors and including U.S. private equity firm Bain Capital, and the auction had been hotly contested.

Japan’s trade ministry, which is keen to keep semiconductor technology under domestic control, had largely orchestrated that bid.

A completed transaction by the end of the financial year in March and an agreement with the preferred bidder consortium as early as possible is being aimed by the company, Chief Executive Satoshi Tsunakawa said.

“It is taking time to smooth out differences in opinion among members of the consortium,” he said. Apology for Toshiba’s demotion to the second section of the Tokyo bourse and some other humiliating setbacks was also tendered by him.

However, a quick and smooth conclusion to the deal is likely not possible as it appears.

Western Digital is seeking a U.S. court injunction to prevent any deal that does not have its consent and the company which jointly runs Toshiba’s main semiconductor plant, claims that its partner is breaching joint venture contracts. This claim has prompted the lawsuit be Toshiba.

Mixed messages on their willingness to resolve the spat with the California-based firm were continued to be given by Toshiba executives.

Saying it had been interfering in the sale, Tsunakawa lambasted the Western Digital at the shareholders meeting on one hand. But the Japanese company also hoped to resolve the dispute as soon as possible and was prepared to make concessions, the head of Toshiba’s chip unit also said.

Western Digital’s bid is too low in price

Toshiba argues that Western Digital’s bid for the memory unit presents anti-trust issues and is too low in price.

In a figure that appears to match the amount offered by the preferred bidder, Western Digital has said it offer meets the 2 trillion yen ($18 billion) minimum demanded by Toshiba.

To facilitate a sale, it will provide debt financing, Western Digital said. planned to be invited to join the resubmitted offer would be a state-backed fund, the Innovation Network Corp of Japan (INCJ), and the Development Bank of Japan (DBJ). Both the organizations are presently part of preferred bidder consortium.

Some Toshiba board members are concerned about technology leaks to South Korean chip rival SK Hynix Inc, which is part of the consortium and will provide Bain with financing even though it was not immediately clear what parts of Toshiba’s talks with the preferred bidder consortium were taking time, sources have said.

It is strongly opposed to SK Hynix’s participation and has threatened further legal action, Western Digital has also said.

Around $1 billion in damages is sought in Toshiba’s lawsuit, filed with the Tokyo District Court.

(Adapted from Reuters)

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