Toshiba Agrees to Sell Chip Unit to Bain-led Group

　　Toshiba said it signed an agreement to sell its semiconductor unit to a consortium led by private equity firm Bain Capital for about $18 billion, the latest twist in a months-long saga over the Japanese conglomerate's effort to sell its prized NAND flash business to offset massive losses incurred by its U.S. nuclear power subsidiary.

　　Toshiba said the deal is based on the premise that the sale would move forward even if courts impose an injunction against Toshiba in response to legal challenges brought by Western Digital, the parent company of Toshiba's long-time partner in the NAND flash business, SanDisk.

　　The deal, agreed to by Toshiba's board of directors at a meeting Wednesday (Sept. 20), came just hours after the Retuers news service, citing anonymous sources, reported that Toshiba was once again leaning toward accepting a rival bid from Western Digital.

　　Toshiba said it hoped to sign a final agreement "soon" in hopes of closing the sale by the end of its fiscal year in March. However, it is unclear how the legal action brought by Western Digital — which contends that Toshiba needs SanDisk's permission to sell the unit — would affect the potential sale.

　　Western Digital said in a statement that it was "disappointed Toshiba would take this action despite Western Digital’s tireless efforts to reach a resolution that is in the best interests of all stakeholders."

　　Western Digital also reiterated that it expected to win its arbitration against Toshiba at the International Chamber of Commerce. The company said the cases "continue to move forward," but did not say when it expects the arbitration hearing.

　　"The arbitration process is ongoing and there is no specific calendar set, but the company will provide updates as appropriate," a spokeswoman for Western Digital said in an email exchange with EE Times.

　　The Western Digital statement read, in part, "It is troubling that Toshiba would pursue this transaction without SanDisk’s consent, as the language in the relevant JV agreements is unambiguous, and courts have entered multiple rulings in favor of protecting SanDisk’s contractual rights. Toshiba has also acknowledged and validated SanDisk’s legitimate consent rights on multiple occasions."

　　A California court ordered in July that Toshiba must provide Western Digital with at least 14 days of notice prior to close the sale.

　　Toshiba and SanDisk have been partners in NAND technology development and manufacturing since the late 1990s. The relationship has been strained in recent months as Toshiba has been in negotiations to sell the business to multiple parties, including the Bain-led group and another led by Taiwanese contract manufacturing giant Hon Hai Precision, which operates under the trade name Foxconn.

　　A consortium led by Western Digital also submitted multiple bids in order to win the business. Toshiba's board reportedly has been wary of selling to Western Digital because of possible antitrust issues that could lead to prolonged review of the deal and concern about the size of the stake in Toshiba Memory Corp. that Western Digital would ultimately hold.

　　The Bain consortium also includes the involvement of both Apple Inc and Dell Inc. as well as South Korean memory chip vendor sk Hynix. According to a report by the Nikkei news service, the deal is structured so that state-backed entities Innovation Network Corp. of Japan (INCJ) and the Development Bank of Japan can participate in funding after the potential litigation with Western Digital is resolved.

　　The consortium led by Western Digital's latest bid was also reportedly about $18 billion and included limits on the size of Western Digital's stake in the business, according to the Reuters news service.

　　The bidding war over Toshiba's chip unit comes during a year when NAND flash is in tight supply and sales are up dramatically. Toshiba is the No. 2 supplier of NAND, trailing only South Korea's Samsung.

　　Toshiba said it selected the Bain-led consortium's mid based on multiple factors, including its valuation of Toshiba Memory, impact on customers and probability of obtaining regulatory approval.

　　Toshiba also raised questions about the future of the collaboration between Toshiba Memory and SanDisk, saying it intends to consult with Western Digital "earnestly" about the prospects for continued cooperation in the future.

　　Toshiba announced last month it would go it alone in investing in equipment for Fab 6 at its Yokkaichi operations site. Western Digital said Wednesday that this also constituted a breach of the JV agreement between the firms and said it had filed an additional request for arbitration with the International Chamber of Commerce on the matter.