Toshiba Resumes Talks Over Contentious Sale of Microchip Unit

https://www.nytimes.com/2017/07/13/business/dealbook/toshiba-chip-western-digital.html

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TOKYO — Toshiba, the struggling Japanese technology conglomerate, has been locked for months in a complex dance over the sale of its $18 billion microchip business. In a series of dizzying turns, Western Digital, the American data-storage company, has acted as a supportive business partner, a would-be acquirer and a bitter legal adversary.

Toshiba said on Thursday that it had resumed talks with other bidders. It previously rejected deals with Western Digital and Foxconn, the Taiwanese contract electronics manufacturer.

Just weeks ago, Toshiba had announced plans to sell the chip unit to a group of investors. It needs to get rid of the business to keep the company’s finances from unraveling, but the deal angered Western Digital and set off a public battle.

Toshiba’s announcement on Thursday came on the eve of an arbitration hearing in the dispute with Western Digital, with a hefty prize at stake: Whichever eventually wins control of the microchip unit will become a major player in NAND flash memory, the technology used to store data in millions of cellphones and digital devices.

Last month, Toshiba said it would sell a stake in the unit to a consortium of investors from Japan, the United States and South Korea, anchored by financial firms with close links to the Japanese government. The group includes the American buyout firm Bain Capital and the South Korean technology company SK Hynix.

Toshiba needs money from the microchip sale to fill a financial hole left by losses on nuclear power projects in the United States. It has still not decided how much of the NAND business it will turn over. (It most Toshiba’s profitable division before it was spun off this year in preparation for the sale.)

But on Thursday, Toshiba said in an emailed statement that because it had not reached a final agreement with the buyers it selected last month for the NAND business, “we have started discussion with other suitors.”

That has left the door open for Western Digital, which has seized the opportunity to press ahead with its own bid, made in partnership with the American investment firm Kohlberg Kravis Roberts.

Western Digital this week raised the value of its offer for Toshiba’s microchip unit, though precise terms were not disclosed.

Legal maneuvering has added to the difficulties in the sale process.

SanDisk, a subsidiary of Western Digital, is co-owner with Toshiba of a NAND production operation in Japan. Western Digital argues that its joint venture agreements with Toshiba prohibit the Japanese company from selling the microchip business without its consent.

That contention had given Western Digital an edge in the bidding, but at the cost of poisoning relations with Toshiba. A year ago, the two companies were celebrating an expansion of their joint production operation in Japan: Now they are fighting each other in multiple lawsuits.

Western Digital won the first round of the legal battle this week. A court in California ordered Toshiba to ensure that SanDisk employees could have access to databases and other shared assets at the Japanese operation. Toshiba had been threatening to shut them out.

Toshiba, saying Western Digital is unfairly interfering in the sale process, is countersuing for about $1 billion.

A separate legal round is scheduled to begin on Friday, this time at the International Court of Arbitration. The tribunal, operated by the Paris-based International Chamber of Commerce, adjudicates corporate disputes. Analysts say the prospect of a third party deciding the deal’s fate could pressure both sides to come to terms.

The deal with the consortium, meanwhile, is complicated by the role of SK Hynix.

Some officials in Japan were said to be concerned that SK Hynix might scoop up Toshiba’s NAND manufacturing technology for itself, so Toshiba initially suggested that the South Korean company provide only debt financing for the deal. Limiting it to the status of a creditor, rather than a direct owner, would keep it at an arm’s length from Toshiba’s business secrets.

But SK Hynix appears to want a more central role. Its chief executive, Park Sung-wook, said in Seoul, South Korea, on Wednesday that it was negotiating for an equity stake, Reuters reported. Such an arrangement would be controversial, and in one scenario being discussed by analysts and the Japanese news media, Western Digital could replace SK Hynix in the consortium.