Toshiba had pledged to its shareholders to have a deal in place (and signed) by today for the sale of its flash memory chip unit. In reality, not only was the deal left unsigned but instead, Toshiba decided to sue its partner in the chip business, Western Digital, for a billion dollars citing interference in the sale process of its chip unit.
Toshiba has already selected a preferred bidder that comprises a group of Japanese government entities, Innovation Network Corp of Japan, the Development Bank of Japan and private equity player, Bain Capital, as its primary choice for the sale of the chip unit. The preferred group is being supported by the Japanese government which wants to keep the semiconductor business within Japanese borders and under locally owned control (at least in the majority).
Investors on both sides would be better off not expecting a quick resolution to the stalemate between Toshiba and Western Digital given this new lawsuit. Toshiba is citing interference on the part of Western Digital and also claiming that Western Digital will face antitrust issues if it wins the Toshiba chip business, given that Western already owns Sandisk.
The point is well made, however, in my opinion, that is not for Toshiba to decide. Let the antitrust authorities deal with that issue.
Just yesterday, Western Digital had resubmitted a bid for the chip unit and has said that Toshiba is in breach of joint venture contracts it has signed with Sandisk (owned by Western Digital). Western Digital is also seeking an injunction from U.S. courts to prevent any sale from going through without its consent. That hearing is set for July 14.
In addition, Western Digital has also said that the two Japanese government affiliates will be invited to be part of the group being put together by the company.
Any prospective buyer including the preferred bidder (two Japanese government affiliates and Bain Capital) will be hesitant to sign a deal given the many entanglements between Toshiba and Western Digital which have now only worsened with the lawsuit filed by Toshiba.
Toshiba CEO, Satoshi Tsunakawa, stated, "It is taking the time to smooth out differences in opinion among members of the consortium." Tsunakawa also has said that the Western Digital offer is too low although that has not been confirmed.
If that is the case, then Toshiba can't be blamed for taking the most money that is on the table gave their own major money issues, thanks to the Westinghouse nuclear unit fiasco.
An ugly spat is now turning into an ugly mess and could serve as an overhang for any further meaningful appreciation on Western Digital shares.
Not only is the saga between Western Digital and Toshiba far from over but an ugly spat is now turning into a rancid mess.
Shareholders in Western Digital could be looking at a long drawn-out legal battle between the two partners. Maybe a swap into Micron could be worth a look.
(Long mu, long and short mu options)