Toshiba sues WDC for a cool billion bucks

You could say the flash JV partners' relationship is at rock bottom

Toshiba is suing WDC in a Tokyo court for ¥120bn ($1bn, £830m), alleging unfair competition.

It alleges WDC has "interfered" with the bid process related to the sale of Toshiba’s Memory Corporation (TMC) business.

The overall background to this tortuously complicated issue by the financially threatened Toshiba can be read here. Just yesterday WDC filed a fresh bid for TMC in partnership with private equity house KKR. The day before, Toshiba had been leaning towards selecting a bid worth around ¥2tn from a consortium led by the Innovation Network Corporation of Japan, a state-backed fund.

Toshiba’s negotiations with this INCJ-led group, which it had hoped to complete by today, are continuing.

WDC claims it has a consent right, and alleges Toshiba has no right to sell its interest in their flash foundry joint-venture; it claims this is included in the TMC business. It has taken Toshiba to an international arbitration court and filed for injunctive relief to prevent the sale.

Toshiba is litigating in the Tokyo District Court, and seeking a provisional disposition order for an injunction against acts of unfair competition, and has also brought suit for a permanent injunction, damages and the payment of ¥120bn.

It alleges WDC has "exaggerated" its consent right in order to "interfere" with the sale of TMC.

Toshiba also says it is blocking WDC’s access to JV information, potentially meaning no online or on-premises access for WDC employees.

Meanwhile both WDC and Tosh have announced industry-leading 96-layer 3D NAND technology from the JV; it is working exceptionally on the flash foundry technology front.

Also, Toshiba has announced a ¥180bn ($1.6bn) investment in its Fab 6 at Yokkaichi, where the JV’s operations are based. Fab 6 will build 3D NAND chips. This money will enable TMC to install deposition, etching and other equipment need to build 96-layer chips. Fab 6’s completion target date is towards the end of 2018. WDC (SanDisk) has been asked to invest as well, and Toshiba says:

If SanDisk does not agree to such joint investment, TMC will invest alone in manufacturing equipment for separate TMC capacity.

Stifel analyst and MD Aaron Rakers says: “These announcements continue to reflect the posturing of both parties’ arguments in the sale of Toshiba Memory... The exact ownership structure of the JV interest continues to come into question.”

+Comment

While this is now for the courts to decide, it appears to imply that WDC's latest bid has been rejected. Shareholders needn't hold their breath for a quick bid resolution, it seems.

Whatever goodwill existed between SanDisk and Toshiba in their joint-venture has been boiled completely off since WDC bought SanDisk and so inherited its share in the JV.

It is hard to see how Toshiba and WDC would want to work together in the JV going forward, and we may see the JV unravel. ®


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