Toshiba Names Preferred Bidder in Heated Battle for Chip Unit

(Tokyo) – Cash-strapped Japanese conglomerate Toshiba Corp. chose a consortium led by Japanese government-backed investors as the preferred bidder in a heated competition to acquire its prized memory chip business.

The preferred bidding group selected Wednesday includes the state-backed fund Innovation Network Corp. of Japan, the Development Bank of Japan and the U.S. private equity firm Bain Capital.

The consortium is competing with three major rivals to buy Toshiba’s chip unit Toshiba Memory Corp. for an estimated 2 trillion yen ($18 billion). Tokyo-based Toshiba is reeling from a financial crisis caused by huge losses from its nuclear power plant business. The sale of Toshiba Memory, the world’s second-largest producer of NAND flash memory chips for devices such as smartphones, has attracted major global technology players and investment funds to join the bidding.

The preferred bidding group’s offer is not the highest among the competitors, sources close to the matter said. But in its Wednesday statement Toshiba said that group presented “the best proposal, not only in terms of valuation, but also in respect to certainty of closing, retention of employees and the maintenance of sensitive technology within Japan.”

Toshiba aims to reach a definitive agreement with the preferred bidder by June 28, the date of its annual meeting of shareholders, and to close the transaction by the end of its fiscal year in March 2018, the company said.

The transaction still faces uncertainties and legal challenges by Toshiba’s U.S. business partner, Western Digital Corp., which has also made a bid for the chip unit together with the private equity firm KKR & Co.

Western Digital, which owns part of a Toshiba semiconductor factory in Japan through its subsidiary SanDisk, has demanded a say in the sale. Alleging that Toshiba violated a business agreement, Western Digital last month asked a California state court to block any sale of Toshiba. Western Digital also initiated arbitration proceedings with International Court of Arbitration in Paris.

Sources close to the matter told Caixin that major suitors competing with the preferred bidder include a consortium of Taiwan-based electronics giant Hon Hai Precision Industry, Apple Inc., Dell Inc. and Kingston Technology Corp.; a group led by U.S semiconductor giant Broadcom Corp. and private equity firm Silver Lake; and the Western Digital group.

Hon Hai Precision, better known as Foxconn Technology Group, took over Japanese display maker Sharp for $3.5 billion last year. Foxconn Chairman Terry Gou said in March that solid-state drives were crucial to harnessing the future, and that Toshiba’s edge in the sector was “highly valued” by the company.

Toshiba is selling the chip business to offset losses caused by its nuclear power business, which may force delisting of Toshiba from the Tokyo Stock Exchange. The company’s nuclear unit has recorded huge losses since the 2006 purchase of now-bankrupt Westinghouse Electric Co., which has led to billions of dollars in write-downs.

According to a financial report in May, Toshiba registered a net loss of 950 billion yen in 2016 with net cash outflow of 50 billion yen.

Toshiba Memory has remained the most profitable unit of Toshiba. In 2016, the company reported $10 billion in revenue from the semiconductor business, accounting for 3% of the global market, according to data provider Gartner Inc.

Contact reporter Han Wei (weihan@caixin.com)