Toshiba announced overnight that it had chosen a Japanese government-spearheaded group as its preferred bidder for its flash memory unit, which is up for sale due to the massive problems at its Westinghouse nuclear unit.
The Japanese government group is comprised of the sovereign Innovation Network Corp of Japan, the Development Bank of Japan and U.S. based private equity player Bain Capital. Bain is said to be the lead dog in the deal and is expected to put up almost $7.7 billion of the investment.
Toshiba said that it would like to reach a final decision by June 28, 2017 (Toshiba will hold its annual shareholder meeting this day) and have the deal done and dusted by the end of March 2018.
The troika is said to have put together a bid of more than the 2 trillion yen (roughly $18 billion) asking price set by Toshiba. Chatter is that financing could be provided by South Korean chippy, Hynix, and Mitsubishi Financial Group of Japan.
The deal is far from done yet as Western Digital Corp, which is a partner with Toshiba, has filed an injunction to prevent the sale of the chip business, saying that the right of first refusal is Western Digitals and that no sale can be completed without its consent.
The trade ministry of Japan is asking Western Digital to join the winning troika as investors and in order to facilitate the deal to go through by the deadline mentioned above.
Western Digital has released the following statement in response to the Toshiba deal:
"Toshiba Corporation continues to ignore both SanDisks consent rights and the dual-track legal process currently underway. The language of the relevant agreements is clear: Toshiba Corporation has no right to transfer its JV interests to a third party without SanDisks consent. SanDisk has not given its consent to any transaction, and will continue to protect its JV interests and preserve its rights through both its request for injunctive relief and the arbitration process."
"We note that Toshiba has acknowledged and validated SanDisks consent rights on multiple occasions. Furthermore, certain parties identified in Toshibas announcement have previously been notified by Western Digital that it considers any effort to aid Toshibas breach of its contractual obligations to SanDisk, including any agreement to directly or indirectly transfer any portion of the joint venture, as tortious interference with contract."
"On June 15, 2017, Western Digitals SanDisk subsidiaries filed a request for injunctive relief seeking to prevent Toshiba Corporation from transferring its JV interests until the request of the subsidiaries for injunctive relief in arbitration is decided by the arbitral tribunal. The arbitration filed on May 14, 2017, with the ICC International Court of Arbitration continues to move forward in parallel."
"We remain confident in our consent rights and our legal position and look forward to the hearing for injunctive relief, which is scheduled for July 14, 2017."
As a shareholder in Broadcom, I am glad to see that the chatter regarding Broadcom possibly buying into the deal turn out to be just that. It's clear that the deal is far from done and that Western Digital is not going to let go and rightly so.
With Broadcom still digesting its merger with Avago and also in the middle of integrating its acquisition of Brocade, taking on Toshiba (with all warts due to the messy situation with Western Digital) might not have been the best of moves right now, despite the obvious benefits of a captive flash memory unit.
(Long and short avgo options)