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Sources say Chips Business Stake Sale to Western Digital Being Mulled by Toshiba

Sources say Chips Business Stake Sale to Western Digital Being Mulled by Toshiba
In a bid to dull the blow from a looming multi-billion-dollar writedown on a U.S. nuclear acquisition, Toshiba Corp is looking to sell a minority stake in its core semiconductor business to Western Digital Corp, a source was quoted in the media as saying.
Last month by announcing cost overruns at a U.S. nuclear business it bought in 2015 which could now mean a charge against profit topping $4 billion, shocked investors as the laptops-to-engineering conglomerate is still recovering from a $1.3 billion accounting scandal.
This writedown could wipe out its shareholders' equity and Toshiba does not have many options to offset the impact of this writedown. It is impossible for it to raise funds from financial markets given the fact the firm is on the Tokyo Stock Exchange's watchlist. Perhaps the only ways out are a stake sale and the spin-off of its profitable but capital-intensive chip business.
"It is true that we are discussing a spin-off of our memory chips business, but nothing has been decided," Toshiba said in a statement, after the Nikkei business daily reported the firm was considering such a move earlier on Wednesday. The chips unit generates most of the Japanese firm's operating profit.
A source briefed on the matter said the two companies were in talks for a "minority stake" sale even though Toshiba did not confirm whether it was looking to sell around 20 percent in the unit to Western Digital for up to $2.7 billion as Nikkei reported.
"Toshiba doesn't have any other options. I have an impression that this deal is their last-ditch measure," said Yasuo Sakuma, portfolio manager and executive officer at Bayview Asset Management Co.
Toshiba could also ask funds to invest in the business that could be valued around 1 trillion yen ($8.9 billion) and the company has been in talks with the U.S. company for a possible investment in the chip unit, sources reportedly told the media.
"There are several candidates for investment," one of the sources said, without giving details.
The sources also said that Toshiba could eventually list the unit but that it would retain a majority stake because it is currently almost the only growth driver and added that the Japanese company is aiming to complete the spinoff by the end of March.
Ranking second after Samsung Electronics which has a 34.9 percent share, Toshiba had a 20.4 percent share in the global NAND flash memory market in April-June last year in terms of revenue according to researcher HIS.
A new industry leader would be created by the combination of Toshiba and California-based data storage company Western Digital.
There were no immediate comments or response about the issue from Western Digital, which operates a NAND flash memory plant in the city of Yokkaichi in Mie prefecture with Toshiba.
Compared to the benchmark Nikkei average that was roughly flat, Toshiba shares closed morning trade up 3.2 percent.
Accounting for 81 percent of its total operating profit, an operating profit of 78.3 billion yen from its chips and devices business over April-September 2016 was reported by the company.

Christopher J. Mitchell

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