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Toshiba inks $18-bn deal to sell chip arm

Toshiba is under pressure to raise money by March to pay for billions of dollars in losses in its US nuclear business

Jeff Green & Jamie Butters | Bloomberg 

Bain Capital Managing Director Yuji Sugimoto attends a news conference in Tokyo, Japan 	Photo: Reuters
Bain Capital Managing Director Yuji Sugimoto attends a news conference in Tokyo, Japan Photo: Reuters

signed a final agreement to sell its flash memory chip business to a group led by Capital for about 2 trillion yen ($18 billion), moving a step closer to completing the deal after months of contentious negotiations.

The consortium includes major technology players Apple, Dell, SK Hynix and Japan’s Hoya, while itself will maintain a stake, the company said in a statement Thursday. The total value of the transaction may change depending on capital expenditures. The deal is aimed at keeping control of an important business in Japan, while securing the funding needed to help repair its damaged balance sheet. 

The sale has been marked by fierce tensions between and Western Digital, its partner in the chips business. The US company has argued it should have veto rights in any sale because of their joint ventures and tried to buy the business itself. disputes its partner has such rights and solicited offers from a range of bidders, including Western Digital’s rivals. The US company has already vowed to fight the sale to through arbitration filings in the US.

True to the deal’s tumultuous nature, called a press conference at Tokyo’s upscale Palace Hotel Thursday evening -only to cancel it as journalists arrived. The firm’s Japan chief explained its partners hadn’t all signed off on the event.

“We thought we could call for the briefing first and get everyone’s agreement in the meantime, but couldn’t,” said Yuji Sugimoto, head of Capital in Japan. “From the business point of view, please rest assured that all of the parties are in agreement.”

is under pressure to raise money by March to pay for billions of dollars in losses in its US business -or see its shares delisted from the Stock Exchange. expects the deal to close by March 31.

The agreement’s signing is a step toward completing a deal that’s gone through innumerable twists since January. 

had been selected as the preferred bidder in June, but couldn’t reach a final agreement because state-sponsored Innovation Network of Japan and backed out of the private equity firm’s consortium in the face of Western

Apple played a central role in resolving the auction by providing financial support and ongoing demand. The iPhone maker is keen on the chip unit because of the importance of flash memory chips, used in every iPhone and iPad for storing photos, videos and other data. Only a handful of make the highest-end technology and the dominant player is Samsung Electronics, a fierce rival to Apple that controls about 40 per cent of the global market for flash memory. 

Investing in the unit helps keep the market competitive and improves Apple’s negotiating position.

Bain, meanwhile, is betting on rising demand and rising prices for memory chips in a market with only a handful of players that can afford to build plants.

reiterated its legal threats in the past week as signaled it was close to a deal with The US company warned that legal proceedings could drag on till 2019 and put the deal in jeopardy. It also plans an injunction to block the sale.

The agreement calls for the sale to be consummated even if the litigation is unresolved. If that is the case, will not transfer its three joint ventures with to the acquirers and the purchase price will be adjusted accordingly, unless the transfer of the memory business itself is blocked by injunction, the statement said.

“This is definitely a step forward,” said Mana Nakazora, chief credit analyst at BNP Paribas in “But with Western Digital’s litigation still unresolved and considering the way this deal has played out so far, the situation needs to be observed with some caution.”

The acquisition will be funded by 350.5 billion yen from Toshiba, 212 billion yen from and 27 billion yen from Hoya. Hynix will invest 395 billion yen, while US investors will add 415.5 billion yen. The special purpose entity making the acquisition, Pangea, also intends to secure loans of about 600 billion yen.

Under the agreement, Japan’s and Hoya will hold a majority of Pangea’s stock. The US investors will not acquire any common stock or voting rights. Hynix has agreed not to increase its stake beyond 15 per cent for 10 years.

Separately, private equity firms Blackstone Group LP and Apollo Global Management LLC are said to have teamed up to bid on Toshiba’s bankrupt power unit Westinghouse Electric and others are considering offers. That deal would also help clean up Toshiba’s balance sheet.
AT A GLANCE

·         The sale has been marked by fierce tensions between and Western Digital, its partner in the chips business
·         The deal is aimed at keeping control of an important business in Japan, while securing the funding needed to help repair its damaged balance sheet
·         Apple played a central role in resolving the auction by providing financial support and ongoing demand
·         is betting on rising demand and rising prices for memory chips in a market with only a handful of players

First Published: Fri, September 29 2017. 02:41 IST
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