As Chip Sale Falters, Toshiba Under Pressure To Consider ‘Plan B’: Reports

Some bankers and potential investors are pressing the Toshiba Corp’s board to seriously consider alternatives, people with direct knowledge of the sale process said – including picking a new buyer as the $18 billion sale of Toshiba Corp’s memory chip unit to a government-approved consortium falters.

Toshiba prefers selling the world’s second-largest memory chip maker to a Japanese government-backed group that also includes Bain Capital and sources say that Toshiba’s leadership is sticking to this plan.

Toshiba was hit by billions of dollars of cost overruns at its U.S. nuclear unit Westinghouse in December and while the Japanese company is still recovering from that $1.3 billion accounting scandal in 2015, the clock is ticking for it.

Its shareholders would be further battered as a gaping balance-sheet hole will prompt automatic delisting of its shares from Tokyo’s stock market unless it closes a deal by March.

Some Toshiba executives and officials at the company’s main creditor banks say they want top management to look at other options as questions emerge around the role of South Korean rival SK Hynix in the preferred bidder group.

“Toshiba hastily picked the consortium ahead of its [June 28] annual shareholders meeting, but more and more flaws are emerging as time passes,” said a senior official at one of Toshiba’s banks.

According to sources, antitrust and national concerns in Japan have been rising as SK Hynix, which was initially included just to help fund the deal, is now looking to own equity in Toshiba’s chips unit.

Toshiba had said previously that SK Hynix would have no equity or management influence seeking to address concerns that its chip technology could be handed to a foreign rival.

Rival suitor Western Digital, which bid for the chip business with private equity firm KKR, would be the only obvious option for the company is the deal is scrapped. With sources describing a deep distrust, already entrenched in a legal dispute with the Japanese firm is Western Digital, already a Toshiba joint venture partner.

Sources also say that two of the members of the preferred buyer consortium of Toshiba are government-backed Development Bank of Japan (DBJ) and Innovation Network Corp of Japan (INCJ) and Western Digital could have the support of both in the bid. While Western Digital has sought an injunction to stop a sale of Toshiba’s chip business, the two banks are said to be wary of SK Hynix, and of Toshiba agreeing a sale to the group.

“If asked, we are ready to team up with Western Digital and KKR, and we actually prefer that,” said a senior official at one of the government investors.

To sign a definitive agreement as soon as possible, the firm is negotiating with the preferred buyer consortium, a Toshiba spokesman said.

A piecemeal process could take too long and selling other assets seems a less likely avenue, as Toshiba has few of sufficient value.

Last year, for a value of $6 billion, it sold its medical equipment business to Canon Inc. Even though he company is reportedly planning to list its smart meter business Landis+Gyr, that will not plug the gap. Sources have said attempts to buy the business for almost $2 billion earlier this year by buyout group CVC and industrial conglomerate Hitachi were turned down by Toshiba.

Because of restrictions imposed by the bourse after the 2015 scandal, Toshiba cannot raise cash by issuing shares.

(Adapted from Reuters)

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