Why is Toshiba's Memory Chip Business so Valuable?

21 September, 2017, 00:58 | Author: Franklin Nunez
  • The logo of Toshiba Corp is seen behind cherry blossoms at the company's headquarters in Tokyo Japan

Dell Inc., Kingston Technology Company, Inc., Hoya Corp and SK Hynix Inc.

Apple is interested in the chip unit because of the strategic importance of flash memory. A number of major tech companies showed an interest in the deal, including Foxconn and Apple Inc., and Toshiba ultimately decided on a consortium of that included several businesses that use its chips in their products.

But one of sources speaking on Wednesday said Toshiba and Western Digital had failed to agree on limits to the USA firm's future stake in the chip business that had been demanded by the Japanese company. Toshiba needs cash by March to prevent it from being delisted from the Tokyo Stock Exchange.

The sale of the Toshiba memory chip unit should remove the looming threat.

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In response to the MOU, Western Digital said it was surprised Toshiba would look to do a deal with Bain "without SanDisk's consent, as the language in the relevant JV agreements is unambiguous, and multiple courts have ruled in favor of protecting SanDisk's contractual rights".

Shares of Western Digital were down more than 4 percent in pre-market trading. To complete the sale, Toshiba may have to overcome continued resistance from joint venture partner Western Digital. SanDisk is a joint-venture partner in producing the chips with Toshiba and as a result of its purchase, Western Digital has a joint-venture manufacturing agreement with Toshiba.

USA private equity firm Bain Capital will lead the worldwide consortium, along with other investors such as Apple, which has reportedly invested at least $3bn. Similarly, a bid led by equity group KKR and Western Digital did not progress.

Things, however, fell through a day before Toshiba made the final decision.

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Media reports circulated that, under the new proposal, Bain had partnered with SK Hynix and brought in USA tech firms such as Apple and Dell, who are both buyers of Toshiba chips, to bolster the offer that is reportedly worth some $22 billion U.S.

The auction has gone through dizzying twists and turns.

Toshiba and the Bain-led consortium on Sept. 13 signed a memorandum of understanding to speed up their negotiations, with a view to reaching a deal by late September. But the MOU didn't preclude Toshiba from continuing to negotiate with other bidders.

The consortium has put forward an acquisition offer of some ¥2.4 trillion, including funds for equipment investment.

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Bain Group revised its offer, by seeking financial support from Apple. Apple, Dell and other U.S. tech firms have also reportedly joined the consortium.



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