Toshiba remains in a financial crisis in the aftermath of massive losses in its Westinghouse US Nuclear power division and has been attempting to sell off its still very much profitable NAND flash manufacturing business to compensate and right the company to avoid being delisted from the Tokyo Stock Exchange. Unfortunately for Toshiba it has now missed three target dates for selling off the business. Not for lack of suitors, but primarily because of legal issues resulting from anti-trust concerns as well as legal battles brought by Western Digital – who Toshiba is in a joint venture with for flash manufacturing in Japan – to attempt to prevent the sale.
Jumping to the present, Toshiba has decided to proceed with the negotiations with an investment group led by Bain Capital despite disappointment (and more legal objections) from Western Digital who tried to block similar negotiations back in June. On Wednesday, it was revealed that Toshiba had signed a “memorandum of understanding” and is engaging in private talks to negotiate the sale with an investment group led by Bain Capital and including SK Hynix (who is allegedly only providing financing at this point and not going after a stake in the business to try to avoid further delaying the sale from increased anti-trust red tape), Apple, Dell, Seagate, and two Japanese government controlled entities known as Innovation Network Corp and Development Bank of Japan (again, Bain Capital is offering them the chance to invest post any WD concessions and legal battles in the business to improve chances of the sale going through). As the preferred (by Toshiba) buyer, the Bain Capital-lead group deal is reportedly worth nearly 2.4 trillion Yen ($22 billion USD) including $1.8 billion earmarked for infrastructure. The company expects come to an agreement in late September and is hoping that it will be able to finalize the sale by March so that it can avoid reporting negative net worth and risking being de-listed from the Tokyo Stock Exchange and being cut off from a huge swath of public investors and capital.
Due to the negotiations being private, details are not readily available yet. It is not clear whether Toshiba will be able to pull it off or what the implications will be for the market if it does. (With Toshiba being the world’s second largest flash memory supplier, whoever ends up acquiring the company is going to have a lot of influence on the market and flash technology R&D.) It certainly seems Toshiba’s battle to right itself is going to continue into next year and Western Digital is not going to make it easy. The US-based WD stated:
“We are disappointed that Toshiba would take this action. Our goal has been — and remains — to reach a mutually beneficial outcome that satisfies the needs of Toshiba and its stakeholders.”
A California court has reportedly ordered Toshiba to give Western Digital two weeks’ notice of any deal with the consortium and its two previous arbitration requests through ICC are still pending resolution. Barrons reports that Toshiba may convince WDC to allow the sale if it gives its joint venture partner enough concessions such as an assured long term NAND supply contract and agreed participation in joint Fab projects that would protect SanDisk's contractual rights. Other interested parties for the sale include Foxconn and Western Digital itself. Perhaps SoftBank or the $100 Billion Vision Fund will come in and scoop it up as well.
[Opinions follow heh] I am interested to see how it all will eventually shake out. It remains less than ideal to see Toshiba must sell it off and have the market possibly lose a big flash memory player as the market share power gets more consolidated if it does get picked up by an existing memory manufacturer (see: hard drives, flash memory seems to be going through the same consolidation of companies from lots of little players into fewer bigger ones). I am not certain on the deal specifics as far as ownership and control of TMC and any cash only vs equity splits but with Japanese investors as part of all three bidding / competing consortiums it seems at least part of the business (if only money from it if not voting power) will remain rooted in Japan even if not under the Toshiba brand.
- Apple Is in Talks With Bain for Toshiba Chips Business (VIDEO) @ Bloomberg
- Toshiba to focus on chip talks with Bain, but doesn't rule out other suitors @ Reuters
- Toshiba Says It Favors Bain Group’s Bid for Microchip Business @ NYT
- Toshiba agrees sale with Bain Capital over protests @ ABC News
- Group Including Apple, Dell Moves to Buy Toshiba’s Chip Business @ WSJ (requires subscription)
- Toshiba Plans To Spin Off Storage Business, Sell 20% Of New Company @ PC Perspective