Toshiba Selects Japan-U.S. Consortium As Preferred Buyer For Memory Business

Toshiba has selected a consortium as their preferred bidder in the sale of Toshiba’s memory business. The consortium is led by the Innovation Network Corporation of Japan, an investment partnership between the Japanese government and 26 Japanese corporations. Toshiba hopes to have an agreement in place in time for their June 28 annual shareholder meeting and to close the deal by March 2018.

Besides the Innovation Network Corp. of Japan (INCJ), the consortium also includes the Development Bank of Japan as well as Bain Capital Private Equity. INCJ is a public-private investment company owned by the government and 19 private corporations; it was established in 2009 with the purpose of revitalizing industry in the country. The company played a key role in establishment of Japan Display Inc. (JDI), which absorbed LCD divisions of Sony, Toshiba and Hitachi. Development Bank of Japan is an investment and financial services organization that is expected to be privatized eventually, but is currently used to fund everything from reinforcing competitiveness of enterprises to disaster relief. For Bain Capital Private Equity a partial acquisition of Toshiba’s memory business would be the first investment in semiconductors as previously the company focused primarily on software and services (e.g., Symantec, Myob, etc.). From reports, it appears that Bain itself is being further backed by none other than Toshiba’s rival in the memory business, SK Hynix.

Investments Planned to be Made by Members of the Consortium
Name Investment in ¥ Investment in $
Bain Capital Private Equity ~¥425 billion ~$3.806 billion
SK Hynix (will invest with Bain Capital) ~¥425 billion ~$3.806 billion
INCJ ~¥300 billion ~$2.687 billion
Mitsubishi UFJ Financial Group (will invest with INCJ) ~¥550 billion ~$4.927 billion
Development Bank of Japan ~¥300 billion ~$2.687 billion
TOTAL ¥2 trillion ~$17.9 billion
Source: Reuters

Toshiba said that the consortium presented the best proposal “not only in terms of valuation, but also in respect to certainty of closing, retention of employees and maintenance of sensitive technology within Japan.”

Meanwhile, Western Digital continues to object to Toshiba’s efforts to spin off and sell their portion of the Toshiba–SanDisk joint venture. Western Digital has not been able to keep pace in the bidding war for Toshiba’s memory business, and they are seeking to intervene in any attempt by Toshiba to conduct a sale without consent from Western Digital’s SanDisk subsidiary. In May, Western Digital initiated arbitration proceedings against Toshiba, and last week Western Digital filed for a preliminary injunction to prevent Toshiba from selling the memory business until the arbitration is resolved. A hearing on the injunction request is scheduled for July 14.

A profitable sale of the memory business is crucial to Toshiba’s financial health as other portions of the conglomerate are deeply troubled. Toshiba’s Westinghouse nuclear power subsidiary filed for Chapter 11 bankruptcy earlier this year after an annual loss of around $9 billion. Those losses and continued effects from previous accounting scandals forced Toshiba to put their thriving flash memory manufacturing business on the market as the only way to raise enough money in a short timeframe. The winning bid for Toshiba’s memory business is expected to be at least $18 billion. No matter who ends up buying the Toshiba memory business, the landscape of the flash memory market will be very different. Toshiba is currently the second-largest manufacturer of NAND flash memory, behind Samsung, with the sale coming at a time when all memory prices are spiking due to high demand.

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