In sale of its chip unit, Japanese company picks group that also
includes Apple, Seagate
By Takashi Mochizuki, Peter Landers and Dana Cimilluca
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (September 21, 2017).
TOKYO -- Toshiba Corp.'s board on Wednesday voted to sell its
memory-chip business to a group that includes Apple Inc. and Dell
Technologies Inc. for Yen2 trillion ($18 billion), moving the deal
closer to final agreement despite objections from a Toshiba
business partner.
The troubled Japanese industrial conglomerate said it hoped to
conclude a final contract soon with the bidder group, which is led
by U.S. private-equity firm Bain Capital. Toshiba outlined a plan
to keep a role in the chip unit even after the sale, reflecting its
desire to stay involved in a business that has been growing quickly
thanks to demand for the chips in smartphones, computer servers and
other electronics.
Toshiba said it chose the Bain group over two rival groups, one
that includes Western Digital Corp. and the other represented by
Taiwan's Foxconn Technology Group. The decision comes a week after
Toshiba and the Bain group signed a nonbinding document saying they
intended to reach a deal by Sept. 30.
At least two hurdles remain to a deal: antitrust review by
authorities around the globe, and objections from Western Digital,
Toshiba's partner in the chip business. Western Digital says it has
the right to veto any sale, while Toshiba says no such right
exists. The two parties are headed for international
arbitration.
Toshiba said that under its interpretation, it could carry
through with the sale of the chip unit even if Western Digital wins
a favorable ruling in arbitration. Western Digital said it was
"disappointed" by Toshiba's decision and confident that it would
prevail in arbitration.
While Toshiba's statement Wednesday didn't mention Apple and
Dell, Bain has said its consortium includes those two companies as
well as Kingston Technology Corp. and Seagate Technology PLC. Apple
plans to offer a loan guarantee of some $3 billion to support the
Bain group, a person familiar with the matter said. The person
cautioned that final terms have yet to be set.
Meanwhile, Seagate, which helped assemble the Bain consortium,
will contribute as much as $1.25 billion in the form of
nonconvertible preferred securities, the person said. The
disk-drive maker is expected to sign a long-term supply agreement
with an independent Toshiba chip business.
By joining the deal, big customers for Toshiba's chips such as
Apple may find it easier to secure supply in a market with high
demand. They would also prop up a rival to the memory-chip leader,
Samsung Electronics Co., which competes with Apple in
smartphones.
Under the procedure outlined by Toshiba on Wednesday, it would
sell the chip unit for about $18 billion to a special purpose
company set up by Bain. Once the deal closes, Toshiba would invest
Yen350.5 billion ($3.2 billion) in that company. A Toshiba
spokesman said if those steps happened as planned, Toshiba would
hold a stake of between 20% and 50% in the chip unit.
The sale process, which began in January, has gone through many
twists and turns as a divided Toshiba board considered the offers,
bidders revised their terms and the Japanese government weighed in.
Japanese officials expressed caution about the bid by Foxconn,
formally known as Hon Hai Precision Industry Co., because of its
extensive operations in China.
Toshiba needs the money because of huge losses from its U.S.
nuclear subsidiary, Westinghouse Electric Co., which filed for
bankruptcy protection in March. As of June 30, Toshiba's
liabilities exceeded assets by about $4.5 billion.
If the deal with the Bain group goes through, Toshiba said it
expected to earn after-tax profit of nearly $7 billion, which it
said would put its balance sheet back in the black by next March
31. That would clear the way for its shares to remain listed on the
Tokyo Stock Exchange.
But the schedule is tight, even if Toshiba reaches a definitive
agreement soon with the Bain group. Toshiba's chip business has the
second-largest market share by revenue after Samsung, according to
research firm IHS Markit, and a sale of such a big business is
normally reviewed intensively by antitrust authorities of various
nations. The process often takes more than six months.
Toshiba said the Bain group envisioned transferring a limited
number shares in the chip unit to a "foreign company," which it
didn't name. A person familiar with the matter said the foreign
company was South Korean chip maker SK Hynix Inc. The extent of SK
Hynix's future involvement in the Toshiba chip unit is likely to be
scrutinized by antitrust authorities.
The Bain group was initially led by the Innovation Network Corp.
of Japan, a fund backed by the Japanese government, and included
the government-owned Development Bank of Japan, but they later
scaled back their involvement. Toshiba said Wednesday the two
government-affiliated entities could eventually take a stake in the
chip unit and, ahead of that, would be granted certain rights to
influence key decisions at the unit.
Write to Takashi Mochizuki at takashi.mochizuki@wsj.com, Peter
Landers at peter.landers@wsj.com and Dana Cimilluca at
dana.cimilluca@wsj.com
(END) Dow Jones Newswires
September 21, 2017 05:15 ET (09:15 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.