Daily Management Review

While Big Hurdles Remain, Japan Government-Bain Group Picked By Toshiba To Buy Chip Unit


With the aim to seal a deal worth some $18 billion by next week as it scrambles for funds to cover massive losses, Toshiba Corp has chosen a consortium of Japanese government investors and Bain Capital as the preferred bidder for its chip business.
But as Western Digital, its chips business partner that has launched legal action to prevent a deal without its consent, was not part of the winning group, the prospects for a clean early resolution to the sale of the world's No. 2 producer of NAND flash chips remain unclear.
A Toshiba spokesman said that the consortium has offered around 2 trillion yen ($18 billion). In comparison, U.S. chipmaker Broadcom and its partner U.S. private equity firm Silver Lake made an offer of a 2.2 trillion yen and the offer by the chosen consortium appeared to be somewhat less than the 2.2 trillion yen rival bidder offer.
But since it would automatically gain an implicit stamp of approval from the Japanese government which is keen to keep key semiconductor technology under domestic control, this government-Bain consortium, while hastily and awkwardly conceived, has been seen as the most likely suitor by many analysts.
While some analysts doubt that the government led group will provide the necessary leadership the chip unit needs, other analysts believe that talks over the hotly contested deal have been so complex that only a government-led solution is viable.
"There are many parties involved in this consortium," said Atsushi Osanai, a professor at Waseda University Business School.
"It has undergone so many twists and turns during its formation process, that I'm skeptical about whether it can promptly make bold decisions. In that sense, Broadcom or Foxconn would be better suited."
The Development Bank of Japan and state-backed fund, the Innovation Network Corp of Japan are part of the consortium in addition to Bain. Sources said that are being held with the core banking unit of the Mitsubishi UFJ Financial Group Inc and South Korean chipmaker SK Hynix Inc.
Due to concerns about prospects of clearing regulatory reviews in its decision, technology transfers and job security for its domestic workforce, Toshiba had taken these into consideration, the company said in a statement.
A U.S. court hearing on its request for an injunction was scheduled for July 14, said Western Digital and the company reasserted that Toshiba was in breach of their joint venture contracts, following the announcement. While Silver Lake declined to comment, there was no one available to give an immediate comment on behalf of Broadcom.
Also taking part in the bidding process for Toshiba’s chip business was Foxconn, the world's largest contract electronics maker. Apple Inc and computing giant Dell Inc. were part of the Taiwanese firm's consortium and the firm was formally known as Hon Hai Precision Industry.
Foxconn did not immediately respond to a request for comment.
Toshiba is attempting to dig itself out negative shareholders' equity that could lead to a delisting and is rushing to sell the unit to cover billions of dollars in cost overruns at its now-bankrupt Westinghouse nuclear unit.
Compared with a 0.4 percent decline in the broader market, Toshiba's shares were 1 percent lower in afternoon trade.