Toshiba Revives Talks for Chip Unit Sale -- WSJ
August 11 2017 - 3:02AM
Dow Jones News
By Takashi Mochizuki
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (August 11, 2017).
TOKYO -- Toshiba Corp. said it has reopened talks with Foxconn
Technology Group and Western Digital Corp. over selling its
memory-chip unit, erasing a Japanese-led group's status as the
preferred buyer in a deal potentially worth $20 billion.
The disclosure suggested the troubled industrial conglomerate
was struggling to close the deal despite urgent time pressure to
find a buyer and get regulatory approval. Toshiba has said it needs
to sell the unit to bring its shareholder equity back into positive
territory by the end of its fiscal year in March 2018. Otherwise,
its shares would be delisted under Tokyo Stock Exchange rules.
In June, Toshiba said it had selected a consortium led by
Innovation Network Corp. of Japan, a fund backed by the government,
as the preferred bidder. On Thursday, Toshiba Chief Executive
Satoshi Tsunakawa revised that description, saying: "In addition to
the consortium, we are also in talks with Western Digital and Hon
Hai" Precision Industry Co., the formal name of Taiwan-based
Foxconn.
As of June 30, Toshiba's shareholder equity -- its assets minus
liabilities -- stood at minus Yen504 billion ($4.6 billion), mainly
stemming from losses on U.S. nuclear power plant projects handled
by a now-bankrupt Toshiba subsidiary, Westinghouse Electric Co.
In a rare piece of good news, Toshiba said Thursday that its
auditor had given qualified approval to its financial statements
after disputes over accounting for the Westinghouse losses.
Analysts and people involved in the chip-unit deal say it could
raise Yen2 trillion ($18 billion) or significantly more because of
the popularity of the unit's NAND flash-memory chips for computers,
smartphones and game devices. One major obstacle is a legal
challenge by Western Digital, a U.S. company with which Toshiba
jointly operates Japan-based factories making the NAND chips.
Western Digital says it has veto rights over a chip-unit sale.
Toshiba says that isn't true, and the two sides are headed for
international arbitration.
Inside Toshiba, some have argued that Toshiba should bury the
hatchet with Western Digital and sell the chip unit to the U.S.
company, while others say Foxconn, a technology giant that
assembles Apple Inc.'s iPhones, is the best choice because it is
offering more money, according to people familiar with the
deliberations.
Meanwhile, talks with the consortium that used to be the
preferred bidder have stalled, in part over issues of control. The
consortium includes Bain Capital of the U.S. and SK Hynix Inc. of
South Korea. The Wall Street Journal reported in July that SK
Hynix, which initially said it would only lend money to back the
deal, actually had plans to acquire an equity stake in the chip
unit. That would give the South Korean company a good look at
Toshiba's technology, contradicting hopes of some in the Japanese
government that the technology wouldn't leak overseas.
Even if Toshiba made a deal today, it could still take six
months or more to receive clearance from antitrust authorities in
major countries.
"We are very aware that the schedule is getting very tight, but
we will do our best in completing the deal by March next year," Mr.
Tsunakawa said.
Some analysts have suggested that Toshiba should call off the
sale and consider using the chip unit's profits and the sale of
other assets to bring shareholder equity back into the black. The
chip unit accounted for more than one-fifth of Toshiba's revenue in
the April-June quarter, and without the unit's Yen90 billion ($820
million) in operating profit Toshiba would have fallen into the red
in operating profit.
However, Mr. Tsunakawa repeatedly told reporters that selling
the chip unit was the only path he could think of for Toshiba to
survive.
Write to Takashi Mochizuki at takashi.mochizuki@wsj.com
(END) Dow Jones Newswires
August 11, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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