The Toshiba and Western Digital 17-year-old joint venture is a strained one at the moment. This is largely due to a falling out over the flash memory business. Massive losses in its bankrupt Westinghouse US nuclear division have led to the Japanese firm deciding to sell the flash memory unit which makes portable device chips.
Toshiba is attempting to sell the business to a consortium of US, Japanese and South Korean investors, backed by the Japanese government. However, it has not yet managed to make the $18 billion deal. It had hoped to have completed the sale prior to its AGM on Wednesday.
Toshiba’s US partner, Western Digital, headquartered in San Jose, is against the deal. In fact, it is so much against the deal that it is seeking a court injunction that prevents Toshiba doing any deal without Western Digital’s consent. Toshiba has a 49% stake in the chip business.
In return, Toshiba is suing Western Digital for 120 billion yen (£835 million/$1 billion). The reason given is that the US company has been “continually” interfering with the bid process and also overstated the amount of influence it had over decisions regarding the sale. Toshiba also stated that it had decided to prevent any information regarding the Toshiba and Western Digital partnership being accessible by Western Digital staff.
What is fundamentally behind all this appears to be that Western Digital wants to buy the chip business itself. It is concerned about the involvement of South Korean semiconductor firm, SK Hynix, which is a rival company. It seems to have reason to believe that the Korean company may harm the joint venture by leaking the technology if the SK Hynix offer is accepted.
Western Digital believes its 49% stake gives it a right to be able to veto the sale. Toshiba disagree. Western Digital claims that the JV deal grants veto rights to both partners regarding asset disposal consent. To complicate matters further, it’s not only Western Digital that has placed a counter offer, but also Taiwan company Foxconn. It had made a previous offer that was rejected, but states that it is still in the running.
Last week, Toshiba warned that its 2016 losses for could be higher than its earlier forecast of 950 billion yen. It has now predicted that its net loss for the year to March 2017 would be 995 billion yen ($7.9 billion). The company was demoted to the Tokyo Exchange second tier due to its liabilities being greater then its assets.
Toshiba has been given regulatory approval to put back its annual earnings filing until August 10th. It had previously been given an extension until June 30th.
Western resubmitted its offer Tuesday. It is believed to be around 2 trillion yen. Foxconn is still in the running, and Toshiba wants to sell to the consortium. Toshiba must be getting desperate for a sale. Its future existence is now in doubt, and it badly needs the cash. Perhaps any of the offers already tabled could be accepted – unless Toshiba’s favored consortium comes up with a new offer. The Toshiba and Western Digital story is not finished yet!
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