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With Attack On Western Digital, Toshiba Ups The Ante In Chip Unit Sale

With Attack On Western Digital, Toshiba Ups The Ante In Chip Unit Sale
Strongly rejecting claims that it has breached a joint venture contract and threatening legal action, Toshiba Corp has told Western Digital Corp not to interfere in the sale of its prized chip unit.
Delaying or even quashing an auction that the Japanese conglomerate is depending on to plug a $9 billion hole in its accounts, is being risked by the clash between Toshiba and Western Digital - both its business partner and one of the bidders for the chip unit.
Having put in a much lower offer than other suitors, Western Digital is not seen as a favored bidder for the world's second biggest NAND chip producer, although the two companies jointly operate Toshiba's main semiconductor plant.
The U.S. firm has asked for exclusive negotiating rights and said argued that by transferring their joint venture's rights to the newly formed unit, the Japanese company is violating their contract. To press its case, Chief Executive Steve Milligan is currently visiting Japan.
But Toshiba said it would pursue all available remedies if it saw continued interference in the sale process, according to a May 3 letter sent by Toshiba's lawyers in  which the TVs-to-nuclear conglomerate has disputed Western Digital' s argument.
Western Digital's "campaign constitutes intentional interference with Toshiba's prospective economic advantage and current contracts. It is improper, and it must stop," the letter reportedly said.
Western Digital was accused of failing to sign some joint venture agreements by the general manager of Toshiba's legal affairs in a separate letter, also dated May 3.
The letter said that by suspending Western Digital employees' access to all of the unit's facilities, networks and databases, the chip unit would protect its intellectual property rights if Western Digital refuses to sign by May 15.
There were no immediate comments from a Western Digital spokeswoman in Japan.
Western Digital has the upper hand, for some analysts.
"From a commonsense standpoint, it's hard to buy Toshiba's argument that it doesn't need approval from its JV partner because it's almost a 50-50 joint venture," said Masahiko Ishino, an analyst at Tokai Tokyo Research Center.
Earlier in the week, news agency Reuters reported citing a source familiar with the matter, that the most feasible solution would be a consortium of U.S. private equity firm KKR & Co LP and Japanese government-backed investors, Toshiba believes.
A joint offer in the second round of bidding is expected ot be submitted by KKR and state-backed Japan Innovation Network Corp.
South Korea's SK Hynix Inc., U.S. chipmaker Broadcom Ltd, which has partnered with private equity firm Silver Lake Partners LP, and Taiwan-based Foxconn are among the other suitors.
It is opposed to a deal with Broadcom, Western Digital has vehemently said. Any deal that could allow the transfer of sensitive technologies and represent a risk to national security, has been vowed to be prevented by the Japanese government and therefore other suitors could also be blocked by the Japanese government.
And as disagreements over its books are unlikely to resolved, its second such earnings report, Toshiba plans to report full-year results this month without an endorsement from its auditor, sources have said earlier.

Christopher J. Mitchell

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