JOHANNESBURG - Toshiba signed a final deal to sell its flash memory chip business to a group led by Bain Capital for about ¥2trillion (R239.44billion), moving a step closer to completing the deal after months of contentious negotiations.
The Bain consortium includes major technology players Apple, Dell, SK Hynix and Japan’s Hoya, while Toshiba itself will maintain a stake, the company said yesterday. The total value of the transaction may change, depending on capital expenditures. The deal is aimed at keeping control of an important business in Japan, while securing the funding needed to help Toshiba repair its damaged balance sheet.
The sale had been marked by fierce tensions between Toshiba and Western Digital, its partner in the chips business. The US company argued that it should have veto rights in any sale, because of their joint ventures, and tried to buy the business itself. Toshiba disputes its partner had such rights and solicited offers from a range of bidders, including Western Digital’s rivals. The US company had already vowed to fight the sale to Bain through arbitration filings in the US.
True to the deal’s tumultuous nature, Bain called a press conference at Tokyo’s Palace Hotel yesterday evening, only to cancel it as journalists arrived. The firm’s Japan chief explained its partners hadn’t all signed off on the event. “We thought we could call for the briefing first and get everyone’s agreement in the meantime, but couldn’t,” said Yuji Sugimoto, head of Bain Capital in Japan.”
Toshiba is under pressure to raise money by March to pay for billions of dollars in losses in its US nuclear business or see its shares delisted from the Tokyo Stock Exchange. Toshiba expects the deal to close by March 31.
The agreement’s signing is a step toward completing a deal that’s gone through innumerable twists since January. Bain had been selected as the preferred bidder in June, but couldn’t reach a final agreement because the state-sponsored Innovation Network Corporation of Japan and the Development Bank of Japan backed out of the private equity firm’s consortium in the face of Western Digital’s threats.
Apple played a central role in resolving the auction by providing financial support and ongoing demand. The iPhone maker is keen on the chip unit because of the importance of flash memory chips, used in every iPhone and iPad for storing photos, videos and other data. Only a handful of companies make the highest-end technology and the dominant player is Samsung Electronics, a fierce rival to Apple that controls about 40percent of the global market for flash memory. Investing in the Toshiba unit helps keep the market competitive and improves Apple’s negotiating position.
Bain, meanwhile, is betting on rising demand and rising prices for memory chips in a market with only a handful of players that can afford to build plants.
Western Digital reiterated its legal threats in the past week as Toshiba signalled it was close to a deal with Bain. The US company warned that legal proceedings could drag on till 2019 and put the deal in jeopardy.
It also plans an injunction to block the sale.
The Bain agreement calls for the sale to be consummated, even if the litigation is unresolved. If that is the case, Toshiba will not transfer its three joint ventures with Western Digital to the acquirers and the purchase price will be adjusted accordingly, unless the transfer of the memory business itself is blocked by injunction, the statement said.
“This is definitely a step forward,” said Mana Nakazora, chief credit analyst at BNP Paribas in Tokyo.
“But with Western Digital’s litigation still unresolved and considering the way this deal has played out so far, the situation needs to be observed with some caution,” added Nakazora.
The acquisition will be funded by ¥350.5bn from Toshiba, ¥212bn from Bain and ¥27bn from Hoya. Hynix will invest ¥395bn while US investors will add ¥415.5bn.
The special purpose entity making the acquisition, Pangea, also intends to secure loans of about ¥600bn.