What a pain for poor old Bain: Toshiba $18bn flash chip biz sale stalls

Memory business deal could be sunk

Japanese multinational conglomerate Toshiba sign in Beijing, China

+ Comment A delay in antitrust approval by Chinese regulators has stalled Toshiba's sale of its TMS flash business for $18bn to a Bain-led consortium - and analysts have said this might be best for the business.

Options being considered by Toshiba, according to senior Wells Fargo analyst Aaron Rakers, include listing the chip unit on a stock exchange, changing the composition of the buyer group or keeping the chip unit as a full part of Toshiba.

The WSJ (behind paywall) reported last night that Toshiba had "mostly given up" on the sale. Rakers noted one of the company’s lenders, Dai-ichi Life Holding, does not have "any strong wishes that they should sell [Toshiba Memory]". Additionally, Toshiba's new chairman and CEO, Nobuaki Kurumatani, has said that TMS requires such significant ongoing financing it would be best if it were separate from the rest of Toshiba.

The sale was set up to help Tosh recover from being potentially nuked out by losses from its Westinghouse nuclear power station building business in the US. But it has raised ¥600bn ($5.4Bn) of fresh cash since then and the sale is not so necessary after all.

Although the sale was agreed months ago, the Chinese state regulator has yet to approve it. Antitrust approval by regulators in China, one of the Japanese consortium's biggest markets, was originally expected between April and June but according to the WSJ report, regulators are effectively ignoring the deal.

Troubled US-China trade negotiations could be affecting this; US president Donald Trump has been feuding over tariffs with the world’s second-largest economy for months and trade issues talks are continuing.

+ Reg Comment

How would a Toshiba Memory Business (TMS) sale cancellation affect certain players in the flash storage game?

We suggest it would be good news for Western Digital, Toshiba's partner in a set of flash foundry joint ventures. Toshiba's JV share is owned by TMS and the sale to the Bain group means that WD flash chip and product competitors Seagate and SK Hynix are involved with TMS. Having the sale collapse would stop that from happening.

Seagate has a long-term flash chip supply deal from the sold-off TMS business, courtesy of its membership of the Bain consortium. If the Bain bid fails, then that chip supply deal is likely to be toast.

Could Seagate get a replacement deal from a fully Toshiba-owned TMS? That would be up for negotiation and TMS may feel it needs all of its output from the flash fabs jointly owned and operated with Western Digital for its own use.

SK Hynix would no longer have any financial interest in TMS and its long-term plans for any closer TMS relationship would go back to square one. It operates its own fab facilities and isn't involved in any supply deal like Seagate.

All things considered, a TMS sale fail could be good news for WD, but not so for Seagate and SK Hynix. It would be a costly mess for the Bain group as millions of dollars will have been spent on setting it up. But, hey, private equity comes a cropper? Not really a problem for the rest of us, is it? ®




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