UPDATED 01:23 EDT / APRIL 13 2017

INFRA

Western Digital moves to block Toshiba’s chip business sale

Toshiba Corp.’s plans to sell its semiconductor business have hit a roadblock, as rival storage firm Western Digital Corp. has said any sale would contravene the terms of their joint venture.

Toshiba has set up its semiconductor business as a separate company so it can easily be sold off, to make up for losses incurred by its now-bankrupt Westinghouse Electric subsidiary in the U.S. The corporation is currently staring in the face of a financial meltdown as a result of that bankruptcy, with reports saying that it stands to make a loss of one trillion yen ($9.187 billion) for the current business year.

The company’s semiconductor business is valued at $18 billion, but it also encompasses the FlashAlliance joint venture that Toshiba set up with SanDisk, which was acquired by Western Digital in 2015. As such, Toshiba would be required to negotiate with Western Digital first before any deal on a sale can be reached, WD claims.

Reuters cites a letter sent by Western Digital Chief Executive Officer Stephen Milligan to Toshiba’s board of directors that says the proposed sale of its flash memory chip business would be a “very serious breach of joint venture agreements”, between the two companies. It further states Western Digital’s wish to enter into exclusive talks with Toshiba to buy its semiconductor unit, claiming that competing bids of between $18 billion and $27 billion are in excess of the businesses’ fair value.

Western Digital’s bid for the business is “far below” those offers, Reuters reported.

Hon Hai Precision Industry Co., also known as Foxconn, is said to be leading the race with its $27 billion offer, though other companies including U.S. firm Broadcom Ltd. and South Korean company SK Hynix Inc. have also tendered bids. A sale to Foxconn would clear up all of Toshiba’s debts and secure its future, but reports say the Japanese government opposes any deal as it would mean losing technology and jobs to China, and that it favors Broadcom’s bid instead. However, Western Digital in its letter mentions that it’s especially opposed to Broadcom’s offer, saying that it has serious concerns based on recent commercial dealings with the firm.

Western Digital’s opposition means that lawyers on both sides will likely need to go over the details of the joint venture agreement with a fine-tooth comb to work out what happens with such a disagreement. Negotiations could lead to the joint venture being wound down, or removed from the semiconductor business sale. Alternatively, Western Digital could buy out Toshiba’s share of the joint venture altogether, paving the way for a sale of its semiconductor unit.

Image: CeBIT Australia/Flickr

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