Toshiba to sell chip unit for $18 billion to Bain-led group

Group has financial backing from Apple and Dell

Chip

Toshiba has agreed today to sell its flash memory unit for $18 billion to a group led by Bain Capital.

The Bain group is backed by Japanese and overseas companies, and even Toshiba, as reported by Bloomberg.

Apple, Dell, SK Hynix and Hoya are set to provide financial support, according to Bloomberg sources. Apple was a key player in the auction during the Bain offer too.

In the agreement, Bain, Toshiba, SK Hynix and Hoya will pay approximately 960 billion yen ($8 billion) for common and convertible stock. Apple, Dell, Kingston Technology and Seagate Technology will spend approximately 440 billion yen ($4 billion) for convertible and non-convertible preferred stock, according to Bloomberg sources.

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There will also be a special purpose entity making the acquisition which will be named Pangea. It will receive approximately 600 billion yen ($5 billion) in loans.

Toshiba faced some problems when Western Digital, which has joint-ownership of some of Toshiba's chip units, raised objections about SK Hynix, one of its rivals, taking part in the bidding process. This led to Western Digital filing a suit with the Supreme Court of California as it sought an injunction.

Toshiba responded by suing Western Digital for $1 billion in damages as Western Digital issued a last minute bid for the chip business, causing Toshiba to push back its timeline for the sale and miss its self-imposed deadline.

Toshiba now aims to close the deal by March 31 to give the company a positive net worth by the end of the fiscal year. It revealed in April that it was facing up to $5 billion losses and has been trying to sell its memory chip business to negate the losses for eight months.

07/08/2017: Toshiba attempts to block Western Digital from sharing new flash chips

Toshiba has said it will prevent Western Digital from cashing in on its next generation of flash chips, as the two sides continue to disagree over the legal rights of a joint venture.

The companies remain locked in a dispute over the sale of Toshiba's memory chip business, something that Western Digital, as part of a joint investment venture, claims it has a right to veto.

That joint venture, which was transferred to Western Digital following the buyout of SanDisk, is once again causing a headache for Toshiba, which is now attempting to invest in a new production facility known as Fab 6.

Announced last week, the investment would see Toshiba build two new sites at the facility to develop the next generation of 96-layer flash memory chips. However, citing apparent rights under the joint venture contract, Western Digital claimed it has a right to be involved in the investment and a share of any developed products.

Toshiba said in a statement to Bloomberg: "Toshiba is dismayed by Western Digital's pattern of exaggerating SanDisk's rights under the relevant agreements".

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"As of today, SanDisk will not receive any capacity from Fab 6 (scheduled to start production in summer 2018), which includes the latest generation of 96-layer BiCS memory products."

Western Digital countered with a statement of its own, arguing that Toshiba is in the wrong and that claimed rights set out under the joint venture contract are valid.

"The terms of the agreements and our related legal rights are clear, and we remain confident that we will receive our share of any capacity from Fab 6," a statement to Bloomberg read. "We are continuing our constructive dialogue with Toshiba on this and other matters."

News of the latest spat appeared to spook investors, sending shares falling by almost 4% to close $81.17 on Friday, according to Bloomberg figures.

A judge in San Francisco ruled on Friday to prohibit Toshiba from blocking Western Digital employees from accessing shared databases set up under the joint venture. The ruling also forces Toshiba to continue its commitment to supply WD with materials to sites in the US.

04/07/2017: Toshiba asks US court to reject Western Digital injunction request

Toshiba asked a US court on Monday to dismiss the Western Digital injunction preventing the sale of its chips business, claiming that the court has no jurisdiction to grant it.

The Japanese tech giant handed a letter to the court in which it claimed the Californian court lacks jurisdiction over the dispute because the court cannot block a business transaction that Toshiba hopes to make in Japan.

It argued that subsequently, if the Superior Court of California grants Western Digital the injunction, it would not be enforceable, adding that it would cause irreparable harm.

Toshiba also insisted that the dispute over the business should be resolved in California at the International Court of Arbitration, although it added that it does not need Western Digital's consent to release the chip unit. Western Digital contends that an injunction would give the arbitration court more time to resolve the dispute.

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Toshiba is trying to find billions of dollars lost in the bankruptcy of its nuclear unit, Westinghouse Electric, earlier this year by selling its memory chip unit. Western Digital, which jointly runs the semiconductor plants, declared that the move was a breach of contract and the two have since been locked in dispute.

Toshiba's preferred bidder is a group led by the Japanese government and includes investment firm Bain Capital as well as rival South Korean chipmaker SK Hynix. Western Digital objected to SK Hynix from taking part in the bids.

At the end of last month, Western Digital decided to issue a last-minute bid for the chip unit to prevent Toshiba landing a deal with its preferred bidder. As a result, Toshiba had to push back its deadline for the sale and then sued Western Digital for 120 billion yen (0.83 billion) in damages.

For now, the California court will convene to hear arguments for and against the injunction on 14 July.

29/06/2017: Western Digital tries to rally Toshiba shareholders against lawsuit

Western Digital said today that Toshiba's decision to take legal action and other moves over the sale of its memory chip unit will ultimately harm Toshiba's shareholders and customers.

"This action will have the consequence of harming not only Toshiba's stakeholders but also our respective customers," Western Digital said in a press release.

Toshiba announced yesterday that it will be suing Western Digital for $1 billion in damages. This came after Western Digital issued a last-minute bid to stop the sale of the chip division, which prevented Toshiba from landing a deal with its preferred bidder.

Toshiba had to push back its timeline and missed the deadline for the sale and is now claiming 120 billion yen (0.83 billion) in damages from Western Digital.

The spat has got so bad that some Western Digital employees have reportedly not been able to access shared databases and, in some instances, the facilities themselves.

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The US firm claimed that Toshiba's lawsuit was "surprising" and that it's part of continued attempts to force Western Digital to relinquish its consent rights and to distract Toshiba stakeholders following the annual general meeting yesterday.

The Japanese giant needs to raise funds to recover from the bankruptcy of its nuclear unit earlier this year and is looking for $18 billion for selling its NAND processor unit.

Western Digital, which jointly runs Toshiba's semiconductor plants, claims that the move is in breach of a joint venture contract and that its consent was never obtained to put the unit up for sale. It applied for an injunction to stop the deal in the US, which is to be heard on 14 July.

28/06/2017: Toshiba sues Western Digital for $1bn for 'interfering' with chip unit sale

The soap opera that is Toshiba's chip unit sale continues, as it now appears the company will be suing Western Digital for $1 billion in damages.

The news comes after Western Digital issued a last-minute bid on the chip division, preventing Toshiba from landing a deal with its preferred bidder, a conglomerate of Japanese government investors.

As a result, Toshiba was forced to push back its timeline and miss its self-imposed deadline for the sale. It is now claiming 120 billion yen (0.83 billion) in damages against Western Digital, which it says is attempting to interfere with the process, according to a report by Reuters.

The Japanese company also said it had blocked Western Digital employees based near their Yokkaichi chip plant from accessing any information relating to the joint venture, potentially putting research and development on the processors on hold.

Toshiba is hoping to cover billions of dollars lost from the bankruptcy of its nuclear unit earlier this year, and is looking for 2 trillion yen ($18 billion) for its NAND processor unit.

Its chief executive, Satoshi Tsunakawa, said that the firm would now seek agreement on the deal with its preferred bidder by the end of the financial year next March. "It is taking time to smooth out differences in opinion among members of the consortium," he explained in an interview with Reuters.

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However this is unlikely to be easy as Western Digital, which jointly runs Toshiba's semiconducting plants, maintains that the move is in breach of a joint venture contract and that consent was never obtained to put the unit up for sale. It has applied for an injunction to the deal in the US, which is to be heard on 14 July.

26/06/2017: Western Digital objects to SK Hynix taking part in Toshiba chip unit sale

Western Digital has told Toshiba that it won't allow rival chipmaker SK Hynix to participate in a bidding consortium for Toshiba's memory chip business.

Western Digital jointly runs Toshiba's main semiconductor plant and has sought a US court injunction to prevent any deal that it does not consent to, reports Reuters.

Toshiba wanted to sign a definitive agreement with its preferred bidder by Wednesday, which is the day of its annual shareholders' meeting. Its preferred bidder is a group led by the Japanese government and includes investment firm Bain Capital as well as rival South Korean chipmaker SK Hynix.

The Japanese government is looking to keep the firm under domestic control and has put forward a two trillion yen ($18 billion) offer. Bain is planning to invest 850 billion yen and South Korea's SK Hynix will apparently provide half the amount Bain puts up in the form of financing, according to Reuters sources.

Western Digital sent a letter on June 25 to Toshiba's board about SK Hynix's participation, saying that the rival's presence in the consortium increased the chances of a technology leakage to the rival chipmaker, declaring that the winning bid did not appear to be bigger than its own offer.

"I must make it clear that Western Digital will not consent to a transaction with the proposed consortium," said Western Digital CEO Stephen Milligan. "This potential course of action would make further litigation inevitable."

In April, Toshiba announced that it had an income loss of $4.9 billion and, sparking the sale of its memory chip business. Toshiba's joint venture partner, Western Digital, has joint-ownership of some of the chip units facilities and claimed that the sale might violate their contract.

The spat between the two companies escalated and Western Digital filed a suit with the Supreme Court of California, seeking an injunction, and it expects the court ruling on July 14.

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On Friday, Toshiba CEO Satoshi Tsunakawa said he was open to talks with Western Digital but would not make the first move. He also claimed that SK Hynix would not hold any equity so would not be involved in management, therefore preventing the leaks of key technical information.

SK Hynix is fairly weak in NAND chip technology and has previously said it has decided to join the consortium as it sees business opportunities. In the past, Toshiba has sued the company over suspected theft of data related to flash memory technology which was settled by the South Korean firm for $278 million in 2014.

Tsunakawa declared that the consortium would not be changed before June 28 as Western Digital's offer had not found favour on the price and also because the US firm wanted to take control of the unit.

IT Pro has contacted SK Hynix and Bain Capital for a comment.

05/06/2017: Apple and Amazon to back Foxconn on Toshiba chip bid

Apple and Amazon are reported to have financially supported the Foxconn Technology Group in its bid for Toshiba's memory chip unit.

Chairman of Foxconn Terry Gou confirmed this in an interview with the Nikkei Asian Review.

Gou said: "Of course Apple and Amazon are offering money together, but I cannot comment on how much funds each company is putting on the table".

Foxconn is purportedly the highest bidder among five interested buyers, offering more than 2 trillion yen ($18.2 billion) for the chip business.

In April, Toshiba announced in its third quarter financial results that it had an income loss of $4.9 billion. In order to combat this, the company was considering selling off a majority stake in Westinghouse Electric, its nuclear power subsidiary, as well as its memory chip business. Foxconn was reportedly a potential buyer of the chip business and this is now looking even more likely to be true.

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In order to sell the memory chip business rapidly, Toshiba hoped to split it off into its own company. Toshiba's joint venture partner Western Digital has joint-ownership of some of the chip unit's facilities and claimed that the sale might violate their contract.

Western Digital stated in mid-May that it will take the company to arbitration and on 2 June reaffirmed this: "Western Digital continues to believe that any actions by Toshiba to transfer its JV interests to a third party without SanDisk's consent clearly violate the anti-transfer provisions of the joint venture agreements."

IT Pro has contacted both Apple and Amazon but so far they haven't made a comment.

13/04/2017: Toshiba faces problems in sale of chip business

Toshiba revealed on Tuesday that it was facing up to $5 billion losses and is trying to sell its memory chip business in an attempt to raise money.

Bloomberg Technology reported  the sale may have hit a hurdle, however, with Toshiba's joint-venture partner Western Digital stating that the sale might violate the companies' contract. Western Digital CEO Steve Milligan said in a letter sent to Toshiba on 9 April that the company should negotiate exclusively with his company before any sale.

Milligan claimed the rumoured bidders for the chip business were unsuitable and the prices offered for the chip business were above its fair and supportable value. He also advised against selling to Broadcom, a company that has led the wave of consolidation in the chip industry over the last two years.

A spokesperson for Toshiba told IT Pro: "Toshiba does not comment on confidentiality agreements we have in place with our partners."

The two companies have joint-ownership of some of the chip unit's facilities and its sale is expected to raise $18.4 billion. Toshiba has narrowed down potential buyers after a first round of bidding and Bloomberg says Taiwan's Foxconn has indicated it's happy to pay as much as $27 billion for the business.

Toshiba restructured its divisions to try and counteract growing losses but was rocked when its nuclear power subsidiary, Westinghouse Electric, filed for bankruptcy.

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Toshiba's income loss for April to December 2016 was $4.9 billion.

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