Toshiba sells memory biz for $18bn, becomes the Bain of Western Digital's existence

Japanese company sells memory biz to private equity and WD flings sueballs to stop it

Toshiba has picked a Japanese-American consortium assembled by Bain Capital Private Equity as the buyer of its memory business. Jilted suitor Western Digital has immediately tried to stop the transaction happening.

This story starts in the year 2006 when Toshiba acquired Westinghouse Electric in the hope it could grow a nuclear power business. It couldn't and in 2017 Westinghouse filed for bankruptcy, dragging Toshiba down to a colossal loss along the way. The Japanese company therefore decided to offload subsidiary Toshiba Memory Corporation (TMC) to raise some much-needed cash.

Complicating the matter was Western Digital's (WD) acquisition of SanDisk, as the latter concern had inked deals with TMC to build new chip-making plants that both would use. With the world moving away from spinning rust to solid-state media, WD needed those factories. It therefore made a strong play to buy TMC and enforce the joint venture agreements it inherited.

But that bid appears to have foundered for a few reasons, as Toshiba's announcement (PDF) says it evaluated bids for TMC on the following criteria:

  • The estimated value of the business;
  • The ability to secure continued and stable growth for the memory business, including in relationships with key customers and suppliers;
  • Job security for TMC's employees;
  • The likelihood of securing competition law approvals in key jurisdictions;
  • The likelihood of clearing required processes specified by key authorities;
  • The likelihood of closing by the end of March 2018

"Toshiba's Board of Directors has determined that the Consortium's bid provides the highest degree of closing certainty, including by limiting the future voting and governance or control rights of certain non-Japanese companies," the statement said. "Toshiba places significant value on the fact that this proposal and will allow TMC to maintain its independence, which is important for the future growth of the memory business."

As the Japanese members of the consortium include government entities and TMC's operations won't substantially change, Toshiba is also confident that Japan will approve the deal.

The statement also said the sale means TMC "is also proceeding with an investment in the construction and installation of manufacturing equipment of Fab 6 at Yokkaichi Operations, TMC's Flash memory facility". The company will also start work on a new plant at Kitakami City.

SanDisk has "partially collaborated in product design and development and jointly invested in certain production equipment used at Yokkaichi" but the statement added: "Any future collaboration between SanDisk and TMC will be discussed by the two parties."

And also discussed by the International Court of Arbitration, because that's the tribunal to which WD has filed an additional Request for Arbitration as soon as news of the Bain deal emerged.

WD's statement said: "Toshiba has improperly denied SanDisk its rights to joint investment by unilaterally investing in manufacturing equipment at Fab 6."

As Fab 6 isn't expected to ship product until 2019, WD says its supply isn't at risk. But it clearly wants in on Fab 6.

Analyst house DRAMeXchange said: "From a medium to long-term perspective, this deal will inject the necessary capital into TMC so that it can work to become a rival to Samsung in terms of NAND Flash technology and production capacity."

TMC believes it can get the deal done by March 2018, pending a shareholder vote at extraordinary general meeting, plus competition law approvals in key jurisdictions. And assuming WD's attempt to injunct the sale fails.

The Register reckons it would be brave to bet against Bain, as securing $18bn is not the sort of thing financiers do if they feel a deal has a significant chance of collapsing. ®


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