Western Digital Still Hopes to Block Toshiba Chip Sale

　　Toshiba may have settled on a bid from a consortium led by private equity firm Bain Capital for its semiconductor business, but the owner of its longtime partner in NAND flash development is still working to prevent the sale.

　　After trying for months to hammer out a deal to acquire Toshiba's semiconductor business, Western Digital now appears to be pinning its hopes on a legal strategy that includes three separate arbitration cases and may take two years or more to resolve.

　　Western Digital has initiated three arbitrations against Toshiba in the matter, most recently last week when it ask the International Chamber of Commerce arbitration court to block Toshiba Memory from going to alone in investing for new equipment for NAND fabs. Toshiba had said it would invest unilaterally in equipment for a new NAND fab at its Yokkaichi operations site, shutting out Western Digital's SanDisk subsidiary, Toshiba's partner in NAND flash development and manufacturing for the past 17 years.

　　An earlier request for arbitration, filed in May, seeks an injunction that would require Toshiba to unwind the transfer of its semiconductor assets to Toshiba Memory Corp., a subsidiary set up for the purpose of being spun out through a sale. That arbitration request also seeks a ruling preventing Toshiba from transferring assets of the joint venture between the two companies without Western Digital's consent and interim injunctive relief presumably in the form of preventing sale of Toshiba Memory until the matter is resolved. A ruling on the request for injunctive relief is not expected until early next year, Western Digital said.

　　Western Digital said the arbitrations — each of which will be decided by a three-member panel — are proceeding. The companies have agreed to some of the arbitrators that will sit on the panels, Western Digital said.

　　There is still no timetable for when the arbitration tribunals will actually begin, and Western Digital said rulings in the cases may take 24 months or more.

　　The legal maneuvers by Western Digital may well put a kink in the works of Toshiba's plans to sell its chip unit to the Bain group, which also includes South Korean memory chip vendor sk Hynix, Apple, Dell and Japanese government-backed organizations Innovation Network Corp. of Japan (INCJ) and the Development Bank of Japan.

　　An earlier effort by the same group to acquire Toshiba Memory stalled, reportedly because both INCJ and the Development Bank of Japan wanted Western Digital's legal challenges to be resolved prior to finalizing a deal. The new deal, announced last week,calls for these organizations to participate in funding the acquisition only after the Western Digital challenges are resolved. Toshiba said the deal is based on the premise that the sale would move forward even if courts impose an injunction against Toshiba.

　　A California court ordered in July that Toshiba must provide Western Digital with at least 14 days of notice prior to close the sale. The court also ruled in August that Toshiba could not prevent SanDisk employees from accessing databases containing relevant manufacturing information about the JVs.

　　The Reuters news service reported Tuesday that the deal with the Bain-led group is still unsigned because Apple had yet to agree to terms.

　　Toshiba has been looking to sell its semiconductor business since early this year to offset huge losses incurred by its U.S. nuclear power business. The company has held negotiations with several groups, including one led by Western Digital and another led by Taiwanese contract manufacturing giant Foxconn. Toshiba announced in June that the Bain-led group was its preferred bidder, but the deal stalled over the Western Digital challenges.

　　In a statement issued Tuesday (Sept. 26), John Hueston, counsel for Western Digital and a partner at Hueston Hennigan LLP, repeated Western Digital's assertion that the joint venture agreements between SanDisk and Toshiba explicitly prohibit the sale of each company's relevant assets without the consent of the other. He said Western Digital remains confident it will succeed in the arbitration process.

　　"Absent any willingness on Toshiba's part to resolve this matter with its JV partner in a constructive manner, we intend to continue our successful legal efforts into the binding arbitration," Hueston said.