Daily Management Review

WD increases the bid for Toshiba's main business


Manufacturer of hard drives Western Digital has increased its offer for Toshiba’s semiconductor business purchase.

Cheon Fong Liew via flickr
Cheon Fong Liew via flickr
Earlier, Western Digital offered about $ 14 billion for Toshiba Memory, which develops and sells flash memory chips. Now the bid has been increased to $ 17.8 billion.

Western Digital intends to pay three quarters of the amount in convertible preferred shares, which can be converted into ordinary securities in just a few years. Another quarter of this amount should be provided by the transaction’s partners in the person of Japanese investors (INCJ and DBJ funds) with state participation.

The Japan Times says that such a financing scheme is not very satisfactory for Toshiba. Huge write-offs in the Japanese conglomerate’s nuclear business resulted in huge losses and negative equity, as a result of which the company threatened to withdraw shares from the exchange and faced big financial problems.

Another obstacle to the sale of Toshiba's semiconductor business to Western Digital is that such a transaction will require approval of antitrust authorities, which means that the process can drag on.

Earlier, WD CEO Steve Milligan in a letter to the board of directors of Toshiba warned that the deal could violate the terms of agreements previously concluded by the companies and stated the need for consultations of representatives of the Japanese company with the management of Western Digital.

WD became Toshiba’s production partner after paying $ 15.8 billion for SanDisk, which had a joint venture with the Japanese corporation. WD’s Finance Director Mark Long said that Toshiba should first have a talk with WD before selling the unit. "While others are considering proposals, we already have a clear idea of the business’ cost and other factors that affect the price. We have more ways to influence the decision than other players do," Mark Long said.

The Taiwanese Hon Hai (also known as Foxconn), South Korean SK Hynix and Singapore Broadcom are now bidding for the chip business as well. Nikkei reports that the chairman of the board of the South Korean conglomerate SK Group, which includes SK Hynix chipmaker, will visit Japan next week to negotiate the possibility of buying Toshiba’s semiconductor division with the company’s management.

Although the companies are engaged in the joint development of new semiconductor technologies, SK Hynix fears that the South Korean company’s offer may encounter opposition from Toshiba’s management. South Korean media, citing informed sources, reported that in the first round of trading SK Hynix offered Toshiba more than $ 9 billion for the majority stake in its business.

At a meeting with representatives of major banks Sumitomo Mitsui Financial Group and Mizuho Financial Group, a representative of Toshiba said that each of the potential buyers offered no less than Western Digital. The lenders have confirmed their demand that Toshiba the division sells as soon as possible, without delaying the negative balance issue.

source: reuters.com

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