Western Digital joins consortium to seize Toshiba’s chip business

Western Digital Corp, the San Jose-based hard drive manufacturer, which is in a bitter fight for control of Toshiba Corporation's multibillion-dollar memory chip business, has now emerged a ''strong contender'' to buy the Japanese conglomerate's chip unit, reports citing unnamed sources said.

A CNBC report citing sources said a consortium that includes Western Digital is offering up to ¥1.9 trillion ($17.4 billion) for Toshiba's memory chip business.

Western Digital will be offering ¥150 billion ($1.37 billion) through convertible bonds and will not seek voting rights in the business, sources familiar with the deal said.

Toshiba is trying to sell the unit to cover losses from its US nuclear business Westinghouse.

The consortium also includes US private equity firm KKR, as well as the state-backed Innovation Network Corp of Japan and Development Bank of Japan, all of which will offer ¥300 billion each for the chip business, the sources said.

Under the proposal, Toshiba's lenders including Sumitomo Mitsui Banking Corp. and Mizuho Bank would also extend around ¥700 billion in loans, they said.

Other Japanese companies will also invest around ¥50 billion to ensure domestic firms hold a combined 60-per cent stake, the sources said, adding that Toshiba itself would keep a ¥100-billion stake in the business.

Western Digital's deal-making team is reported to be in Japan, trying to hammer out the details of a deal valued at around $17.3 billion.

Toshiba had previously favoured a slightly larger deal led by private equity firm Bain Capital, but pulled back after Western Digital threatened to block the sale in court.

Western Digital says its joint venture agreement with Toshiba gives it exclusive negotiating rights over the sale of the business unit.

Toshiba knows that it needs to sign a deal soon, or it risks being delisted from the Tokyo Stock Exchange in March. Even if it were to sign a deal today, the deal might take 6 or more months to get Japanese regulatory approvals.

Neither Toshiba nor Western Digital commented on the deal. KKR also declined to comment.

An earlier report had said that the group was offering around ¥2 trillion but it was unclear how much each party in the group was prepared to offer and whether Western Digital would insist on obtaining voting rights.

Toshiba is looking to seal a deal by the end of this month and close the sale by the end of the fiscal year in March to ensure it does not report negative net worth, or liabilities exceeding assets, for a second year running, which could result in a delisting from the Tokyo Stock Exchange.

Toshiba had resisted Western Digital's attempts to acquire Toshiba Memory, but was unable to finalise a deal because of uncertainty over the outcome of Western Digital's legal challenge to the sale.

According to the Nikkei report, the INCJ - a public-private venture - and the Development Bank of Japan are willing to be involved in whatever consortium strikes a final deal with Toshiba at the urging of the Japanese government.

Toshiba, the No 2 player in NAND flash business, with market share of about 18 per cent, trailing only Samsung Electronic Co Ltd, spun off its semiconductor business in April as a separate unit for divestment.