Toshiba sues Western Digital for $1.1 billion

Toshiba Corp sued Western Digital in a Japanese court, asking for 120 billion yen ($1.1 billion) in damages and seeking to stop the US company from interfering in the sale of its chip unit, escalating a legal tussle between the companies.

The litigation, filed Wednesday in Tokyo District Court, seeks to stop Western Digital from making ownership claims over the enterprise that Toshiba is trying to sell. The Japanese company stated that Western Digital’s employees improperly obtained proprietary information.

The relationship between Toshiba and Western Digital has gotten more acrimonious, as Toshiba moves toward a sale of the flash-memory division. Last month, Western Digital invoked an arbitration clause in their business agreement, seeking to block Toshiba’s transfer of ownership of the unit to a separate legal entity in preparation for a sale. Toshiba, which has since reversed that transfer, then had its lawyers send a letter demanding that the US company stop its “harassment” as Toshiba tries to sell the business.

“Toshiba has made very clear that they want to move the process along without Western Digital’s obstruction, which, frankly, hasn’t been particularly constructive,” said Damian Thong, an analyst at Macquarie Group. “This clearly highlights the deterioration of the relationship between the two partners.”

A representative for Western Digital, which has said that Toshiba needs its consent to complete the sale, declined to comment. Toshiba shares declined 1.8 per cent at the close in Tokyo Wednesday.

The Chip Saga

* Toshiba filed a litigation in Tokyo District Court against Western Digital for interference in sale of its chip unit 

* Toshiba claims Western Digital employees improperly obtained proprietary information

* In May, Western Digital invoked an arbitration clause, seeking to block Toshiba’s transfer of ownership of the unit to a separate legal entity in preparation for a sale

The escalating stand-off between the companies over the chip sale could disrupt Toshiba’s plans to use cash from the divestment to plug a hole in its balance sheet from a massive loss in its nuclear power business.

Last week, Toshiba said a group led by the Innovation Network Corp of Japan, Bain Capital and other investors were the preferred bidders for the semiconductor business, and that it’s aiming to reach final agreement and close the deal by March 2018. The consortium is offering 2.1 trillion yen ($19 billion) for the unit, people with knowledge of the matter have said.

Bloomberg