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Breakingviews - Toshiba aims to please all with chip deal 2.0
August 29, 2017 / 3:17 AM / 2 months ago

Breakingviews - Toshiba aims to please all with chip deal 2.0

HONG KONG (Reuters Breakingviews) - Toshiba aims to please almost everyone with a rejigged selloff. The stricken electronics group must sell its $17 billion memory unit quickly. The first attempt stalled thanks to troublemaking from Western Digital, upon which Toshiba is now pinning its hopes. Version 2.0 should still win antitrust approval - and looks Japanese enough to pass muster in Tokyo.

Toshiba Corp CEO Satoshi Tsunakawa attends a news conference at the company's headquarters in Tokyo, Japan, August 10, 2017. REUTERS/Toru Hanai

Reuters says a consortium led by San Jose, California-based Western Digital is close to clinching a 1.9 trillion yen ($17.4 billion) deal. That is a real win for the outfit.

To recap, Western Digital was frozen out of Toshiba’s original June deal to sell the business, the world’s second-largest maker of flash-memory chips for tablets. The U.S. outfit then ensnared its Japanese joint venture partner in litigation. That raised the risk the deal would not be completed by a crucial March deadline, which in turn could have forced a delisting for the scandal-hit group. Without a deal, Toshiba’s banks might also lose patience and stop extending credit.

The mooted headline price for the new tie-up is 100 billion yen lower. And there have been a couple of personnel changes: Western Digital replaces South Korean chipmaker SK Hynix, and U.S. buyout firm KKR usurps rival Bain. 

But in other ways this looks rather like Plan A. The deal still has a heavy Japanese component, to allay political concerns about control over high-tech assets. The Development Bank of Japan and the Innovation Network Corp of Japan will both put in 300 billion yen, matching KKR’s original planned contribution. Such a set-up could allow Toshiba to buy back in later, if its fortunes improve. Japanese banks and companies will also supply financing. 

Meanwhile, Western Digital will contribute 150 billion yen via convertible bonds, meaning no upfront equity and thus no long competition review – much the same arrangement that SK Hynix would have used.

The revision should be enough to ensure Western Digital gets its way, while the Japanese establishment still has the guiding hand. Something for everyone, except the jilted SK and Bain. And another embarrassment Toshiba will hope the market doesn‘t remember. 

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