U.S. judge postpones decision in bid to block Toshiba memory unit sale

By Stephen Nellis

(Reuters) - A U.S. judge did not reach a decision Friday in Western Digital Corp's bid to temporarily block Toshiba Corp from selling its flash memory business in an $18 billion deal but proposed requiring Toshiba to give Western Digital two weeks' notice before closing.

Toshiba is scrambling to sell its flash memory unit to cover losses from its nuclear reactor business.

In late June, Toshiba announced its preferred bidder was a group made up of Bain Capital, South Korean chip maker SK Hynix and Japanese-government backed banks that offered $18 billion.

Western Digital, which is also bidding, sued Toshiba in San Francisco County Superior Court in mid-June, saying it believed a joint venture with Toshiba means Toshiba needs its consent to sell the flash business.

Western Digital's joint venture with Toshiba helps finance equipment at Toshiba's plants in exchange for some of their output.

Separately from the California lawsuit, Western Digital is also contesting its consent rights in an international arbitration tribunal. Western Digital filed its lawsuit in San Francisco to prevent Toshiba from closing the sale of its memory unit before arbitration has a chance to play out.

At the hearing, Judge Kahn proposed requiring Toshiba to give Western Digital two weeks notice if it believed it would close the sale before the arbitration finished.

Toshiba's attorney said they were concerned about agreeing to be bound by the San Francisco court's jurisdiction. Toshiba has argued that because it is a Japanese company and the deal is taking place mostly in Japan, the court should not have jurisdiction.

Attorneys for Western Digital subsidiary SanDisk, which is formally party to the case, expressed concern that any order in which Toshiba did not agree to the court's jurisdiction would not be enforceable.

The two sides could not agree, so Judge Kahn instructed them to come up with final language for his proposed order and set a new hearing for July 28, when a related dispute between the two will be heard.

In a statement, Western Digital CEO Steve Milligan called the proposed order and postponement a "victory."

"Our entire goal was to preserve and protect our rights through the binding arbitration process, and that's precisely what the court has done today," Milligan said.

Toshiba called Judge Kahn's proposed order "a 'finessed' alternative to issuing a preliminary injunction" and confirmed it agreed not to close a sale before July 28.

(Reporting by Stephen Nellis; Editing by Leslie Adler and Cynthia Osterman)