Toshiba Revives Talks for Chip Unit Sale -- WSJ
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 [email protected]