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Financial Times / Biz - Money

Toshiba to speed up talks with Bain-led group on $20bn chip sale

Toshiba has agreed to accelerate negotiations for the sale of its $20bn memory chip business with a consortium led by private equity group Bain Capital as talks with a rival consortium, led by the US chipmaker Western Digital, broke down.

In a memorandum of understanding, signed on Wednesday afternoon, Toshiba said it would “work to expedite” the sale of its memory chip business to the Bain-led consortium by the end of September.

But it did not rule out the possibility of continuing negotiations with other consortiums that include a bid led by Foxconn, the Taiwanese contract electronics manufacturer.

The Bain consortium includes investment by Apple, the Korean chipmaker SK Hynix, and a large, unnamed Japanese technology company. The consortium has agreed to raise about ¥600bn ($5.5bn) of debt from Toshiba’s main lenders, and Toshiba itself would also take a stake in the memory business.

Within an hour of Toshiba announcing the agreement with Bain, Western Digital said it was “disappointed” with the decision and hinted strongly that it had no intention of dropping its legal objection to Toshiba selling the business without its consent.

“We remain confident in our ability to protect our JV [joint venture] interests and consent rights,” said the statement.

The non-binding MOU in effect returns the situation to where it was two months ago, when Toshiba identified the Bain-led consortium as preferred bidder but acknowledged it would remain in talks with rival bidding consortiums.

Negotiations with Bain reached an impasse over the summer as Toshiba descended further into a legal dispute with its joint venture partner, Western Digital. Two of Bain’s backers — a state-backed fund and a bank owned by the Japanese government — were reluctant to be part of a formal offer until the legal dispute was resolved.

Under Bain’s new proposal, the two government-backed lenders, the Innovation Network Corporation of Japan and the Development Bank of Japan, will step in with investment in financial support once legal issues with Western Digital are resolved, people familiar with the matter said.

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People close to deal negotiations said that the impasse had been unlocked over the past few days as the main parties involved became convinced that Western Digital’s legal objections would ultimately fade as the US chipmaker sought participation in investments in new production and research facilities.

In recent weeks Western Digital, backed by the US private equity group KKR, has made several attempts to restyle its bid, including a written apology to the Toshiba chief executive and a proposal to drop out of the consortium as an investor and suspend its legal actions.

But people with knowledge of the negotiations say that talks between Toshiba and Western Digital never stopped being “extremely difficult”, and continued to throw up “very unrealistic proposals”.

In its statement, Western Digital described its “tireless efforts to reach a resolution that is in the best interests of all stakeholders”, adding that its main goal had been to ensure the continued success of the chip manufacturing joint ventures.

Toshiba is under pressure from its main creditors to sign the deal as quickly as possible in order to fill a $4.5bn hole in shareholder equity by March next year, and avoid a possible forced delisting from the Tokyo Stock Exchange.

Toshiba shares closed flat in Tokyo on Wednesday just before the release of the statement. Shares in SK Hynix rose 1.2 per cent in Seoul to a 16-year high.

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