US technology group Western Digital is to drop its attempt to block Toshiba’s $18bn sale of its prized memory chip unit to a private equity-led consortium, as the two sides look to sign a settlement deal early next week.
The settlement, say people close to the Japanese conglomerate, lifts an obstacle that could have taken years to resolve fully in court, and has been accelerated by pressure from Toshiba’s biggest lenders.
People close to Western Digital and Toshiba, which have been locked in legal dispute over the chip unit sale since it was agreed on September 20, said the board of the Japanese conglomerate had now approved a framework that would end the showdown, see litigation abandoned by both sides and remove one of the few remaining obstacles to the deal. The two sides are aiming to sign an agreement on December 12.
The legal dispute centres on Western Digital’s status as the partner of Toshiba in the joint venture that underlies the memory chip business. Western, which was among a number of unsuccessful bidders for the chip unit, has maintained that Toshiba was in breach of the terms of the joint venture when it undertook the sale.
According to people familiar with settlement negotiations, Toshiba has agreed in principle that Western can invest in a next generation chip production facility from which the Japanese company had previously blocked its JV partner from participating.
A significant part of Western’s objection to the sale arose from the members of the consortium buying the chip unit — a group led by the US private equity group Bain Capital that includes Apple, Dell and the Korean chipmaker SK Hynix. Among Western’s concerns during the settlement negotiations have been assurances that SK Hynix will not ultimately gain control of the chip unit.
In an interview with Japanese media Yuji Sugimoto, managing director of Bain Capital in Tokyo, said parties were putting “utmost efforts” into a reconciliation, explaining that if Western were to lose its joint venture with Toshiba, it would be unable to procure cutting-edge products and would suffer heavy damage to its business.
“Therefore, we are now working towards a reconciliation,” said Mr Sugimoto.
Recognising that the legal dispute between Western and Toshiba had been unusually bitter, Mr Sugimoto said Bain would mediate between the two to “settle ill feeling”.
A spokeswoman for Toshiba said the company was open to a settlement but would not provide details of the discussions. Western Digital could not be reached for comment.
The process of selling Toshiba’s highly-prized chip unit began earlier this year after the Japanese company was plunged into financial crisis by huge writedowns emerging from its US nuclear business. The sale was seen by Toshiba’s lenders as the only viable option for filling a $6.6bn black hole in Toshiba’s balance sheet before Tokyo Stock Exchange rules forced the iconic company to delist.
Toshiba effectively neutralised that risk in November when Goldman Sachs convinced a group of more than 35 global hedge funds to invest in Toshiba through a $5.4bn capital raising. Investors who are part of that group, which includes several well known activist funds, say Toshiba’s new shareholder register could be expected to “hold management to higher standards than they have been held in the past”.
