SAN FRANCISCO — Toshiba Corp. said it inked an $18 billion agreement to sell its semiconductor business to the consortium led by private equity firm Bain Capital — a deal structured to proceed even if Toshiba is still engaged in litigation and arbitration with Western Digital Corp. on the matter.
However, Toshiba added that the sale will not be consummated if the shares of Toshiba Memory Corp., the subsidiary it established to facilitate the sale of the chip business, is blocked by an injunctive order. Western Digital has said it will seek such an order and that a decision could be handed down early next year.
Western Digital and Toshiba are engaged in litigation in multiple venues and arbitration at the International Chamber of Commerce on the question of whether Toshiba can transfer assets used in the joint ventures between the firms to a third party. Western Digital, which last year acquired SanDisk, Toshiba's longtime partner in NAND flash memory development and manufacturing, maintains that the agreements specify that Toshiba cannot sell the assets without its permission.
Western Digital said earlier this week that an arbitration request it filed in May seeks an injunction that would require Toshiba to unwind the transfer of its semiconductor assets to Toshiba Memory and prevent Toshiba from selling the assets until the matter is resolved. A ruling on the request for an injunction is not expected until early next year, Western Digital said.
Jim Handy
Western Digital tried for months to hammer out a deal to acquire Toshiba Memory along with partners, but lost out to the Bain-led consortium. Toshiba board members were reportedly concerned about the size of the stake that Western Digital might ultimately hold in Toshiba Memory.
The legal tussle between Toshiba and Western Digital may jeopardize the longstanding partnership between Toshiba and SanDisk if the sale to the Bain-led group is consummated. But Jim Handy, principal analyst with market research and consulting firm Objective Analysis, believes that a deal would not necessarily spell doom for the partnership.
"If you pull it apart, the people that approved the consortium's offer, they are Toshiba Corporation, not Toshiba Memory," Handy said. "These are not the people that SanDisk and Western Digital are going to be dealing with. The JV could hold together because their might be a very good relationship between SanDisk and Toshiba Memory."
A fab jointly operated by Toshiba and SanDisk at Toshiba's Yokkaichi Operations site.
Source: Toshiba
But Handy points to something else that may undermine the joint venture and Toshiba Memory. The Nikkei news organization reported last week that the bidding process over Toshiba Memory has paralyzed the unit and caused employees to bolt for competitors including South Korea's Samsung Electronics and sk Hynix.
"The rank and file Toshiba employees have lost faith in management," Handy said. "Meanwhile you have China's Yangtze River Storage Technology dangling huge incentives at established NAND flash manufacturers to get them to defect. The longer this is unsettled, the more likely it is that there will be people who flee from Toshiba."
The Bain-led consortium also includes sk Hynix as well as several Japanese and U.S. firms.
NEXT PAGE: Japanese Firms Would Control More Than 50%