The Yomiuri ShimbunUnable to shake its distrust of Western Digital Corp., Toshiba Corp. has ditched the U.S. company as the preferred buyer of its flash memory chip unit and switched back to a consortium of Japanese, U.S. and South Korean partners.
The change was nudged along by an “encircling net” of parties including U.S. company Apple Inc. that had shown concern about the possible sale of Toshiba Memory Corp. to Western Digital.
However, the negotiations are moving at a dizzying pace, so there is still no certainty that Toshiba and the Japan-U.S.-South Korea group will ultimately seal the deal.
Toshiba will accelerate talks with the three-nation group. As the parties seek an agreement, one focus of the negotiations will be whether they can form a framework in which Japanese interests retain control over management of the memory unit.
The Japan-U.S.-South Korea group proposed purchasing Toshiba Memory for ¥2 trillion and also providing several hundred billion yen for capital investment. Toshiba warmly welcomed this offer because remaining competitive in the memory chip market requires a massive investment.
Despite this, there are lingering concerns over whether Japanese parties will keep firm control over Toshiba Memory. The Innovation Network Corporation of Japan (INCJ), a public-private fund, has said it will provide funding only after the dispute between Toshiba and Western Digital has been resolved. This is because if the International Court of Arbitration agrees to block the sale of Toshiba Memory, it could create turmoil in Toshiba’s management and there are fears investors might become unable to recover the capital they poured in.
To clear this hurdle, Bain Capital Private Equity LP, a U.S. investment fund spearheading the Japan-U.S.-South Korea consortium, drew up a new proposal under which Bain would shoulder the INCJ’s share of financing until Toshiba’s dispute with Western Digital is cleared up. It has been rumored that Bain and other parties will sell their Toshiba Memory shares to the INCJ after the dispute is settled.
However, Bain was pulling the strings in crafting the new proposal put forward by the three-nation consortium, and it remains unclear under what conditions the INCJ could become involved. Sources close to the matter have raised concerns that, depending on what conditions are laid out, control of Toshiba Memory’s management could end up in foreign hands.
Toshiba’s main creditor banks want the company to quickly conclude a sale contract so the purchase can go ahead before the end of March 2018. Reviews by antitrust authorities in Japan and overseas are expected to take at least six months, so Toshiba has very little time left. Whether Toshiba can wrap up an agreement with the Japan-U.S.-South Korea consortium is also a race against time.
Among these banks, there is a deep-rooted belief that the Western Digital-led group has an advantage, because if concessions could be made on the capital contribution ratio, the contract could be swiftly signed. If Western Digital presented a compromise plan, it remains possible that it could reemerge as a prime contender to purchase Toshiba Memory.
Although Toshiba selected the Japan-U.S.-South Korea consortium as its preferred negotiating partner in June, a deal could not be reached because the INCJ made resolving Toshiba’s spat with Western Digital a condition for providing capital. In late August, Toshiba pivoted and resumed negotiations with Western Digital’s group. But now, the Japan-U.S.-South Korea consortium has again become the leading candidate to buy Toshiba Memory. Each time the negotiations have seesawed back and forth, the deadline for reaching an agreement has been pushed back.
At a Toshiba board of directors meeting Wednesday, a stern reminder was handed out.