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Bain Capital-Led Group Chosen By Toshiba As Buyer Of Its Chip Unit For $18 Billion

Bain Capital-Led Group Chosen By Toshiba As Buyer Of Its Chip Unit For $18 Billion
In what is a key step in keeping the struggling Japanese conglomerate – Toshiba Corp, listed on the Tokyo exchange, the group agreed on Wednesday to sell its prized semiconductor business to a group led by U.S. private equity firm Bain Capital LP.
Toshiba agreed to sign a contract for the deal worth about 2 trillion yen ($18 billion), the company announcement through the exchange late at night, ending a long and highly contentious auction in a last-minute twist.
The company board finally gave approval for the sale of the world’s No. 2 producer of NAND memory chips.
Its U.S. joint venture partner Western Digital Corp was the one that Toshiba was leaning towards selling the business, sources had said late on Tuesday.
However, since Western Digital has previously initiated legal action against Toshiba, arguing that no deal can be done without its consent due to its position as Toshiba’s joint venture chip partner, it’s unclear whether the sale to the Bain Capital-led group will proceed smoothly.
The deal would weather legal challenges raised by Western Digital, the agreement assumes, Toshiba said.
The company did not have an immediate comment, a Western Digital spokeswoman said.
After taxes, finances would be boosted by 740 billion yen after he sale, Toshiba said. And that would help it to achieve by March its aim to pull it out of negative shareholder equity which would also keep it listed at the Tokyo exchange.
To bolster its bid, U.S. buyers of Toshiba chips such as Apple Inc and Dell Inc were brought in by Bain Capital which has partnered with South Korea’s SK Hynix Inc. also part of the group are data storage firm Seagate Technology Plc and memory product maker Kingston Technology.
Without citing SK Hynix, the Toshiba announcement referred to a group with foreign companies. It rather said that a future capital tie-up was being considered by two Japanese state-backed investors - the Development Bank of Japan (DBJ) and the Innovation Network Corp of Japan (INCJ). These two had bene previously invited to the group by Bain.
Hideki Yasuda, an analyst at Ace Research Institute said that the make-up of the consortium could spell trouble ahead.
“The large number of stakeholders could complicate decision-making and slow down key investment decisions,” he said. The ability of the chips business to negotiate competitively on pricing would also be sapped by the participation of Toshiba clients, he also added.
As wrangling went down to the wire, Bain’s win was hard fought.
Media sources reported that the California-based firm – Western Digital, would not agree to limits to any future stake in the chip business that had been demanded by Toshiba, even as until late on Tuesday, the Western Digital-backed consortium, which includes KKR & Co LP, appeared to be in the lead.
An agreement comes not a moment too soon for Toshiba after a slew of revised bids and changing alliances among suitors.
In order to ensure enough time for regulatory reviews so it can finish the sale by the end of the financial year in March, it has been under pressure from its lenders to clinch a deal this month.
In order to plug a hole in its finances caused by its now bankrupt U.S. nuclear unit Westinghouse and stay listed, Toshiba needs billions of dollars which would not be possible without a sale.
Additionally, Toshiba’s chip unit risks losing its competitive ability as rivals such as Samsung Electronics roll out big capital spending plan as the semiconductor business requires huge amounts of investment.

Christopher J. Mitchell

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