With lawsuit, Western Digital eyes comeback in Toshiba chip saga
US partner makes last-ditch effort for memory unit as bidding wraps up
TOKYO -- Western Digital's latest legal bid to block the sale of Toshiba's semiconductor memory unit shows the hard-drive maker is prepared to fight to the finish for control of those valuable operations.
The American company said Wednesday it had sought an injunction from a California court to keep the Tokyo-based conglomerate from selling Toshiba Memory, a unit created from memory chip operations in April. Western Digital and Toshiba make flash memory chips through joint ventures owned 50.1% by Toshiba. The Japanese partner's "attempts to circumvent our contractual rights have left us with no choice but to take this action," said Steve Milligan, Western Digital's CEO.
Western Digital in May undertook international arbitration to block Toshiba's attempt to sell the unit to a third party. But that process could take around two years. The American court, by contrast, could issue a temporary injunction as soon as mid-July, according to the company.
Not about to lose
The latest legal maneuver was in some sense an act of desperation. At present, the top two contenders for Toshiba Memory are U.S. semiconductor heavyweight Broadcom and a Japanese-American team led by the public-private Innovation Network Corp. of Japan and U.S. investment firm Bain Capital. The latter team cemented their alliance Wednesday, and are set to receive financing from South Korean chipmaker SK Hynix.
Western Digital had sought to team up with the INCJ and American private equity firm Kohlberg Kravis Roberts on a bid of its own. But negotiations ultimately fell through, as the U.S. hard-drive maker insisted on taking a controlling interest in Toshiba Memory. Now that the state-backed Japanese fund has located a new partner, Western Digital's chances of putting together a viable offer have taken a turn for the worse. Blocking any other deal -- particularly one involving a competitor such as SK Hynix -- is the U.S. company's way of retaking the lead.
At the same time, Western Digital has presented Toshiba with a retooled coalition bid that, unlike the prior version, would not give the U.S. company control of the memory business, at least for the time being. But the twin strategies of dialogue and legal force have failed to bridge the gap between the estranged partners thus far.
Wrap it up
Of highest concern to Western Digital is protecting its stake in the Yokkaichi, Mie Prefecture, flash memory plant at the heart of its partnership with Toshiba. This is the only site where the U.S. partner makes such chips, and is thus indispensable to the company's growth plans -- hence the intense effort to block any unfavorable deal. But Toshiba's trust in its partner is wearing perilously thin, and further strain could bring their joint chipmaking operations to a standstill.
Toshiba, for its part, still intends to settle on a buyer for Toshiba Memory by the end of the month. "We will work for a contract by June 28," when Toshiba will hold its annual shareholders meeting, a representative said Thursday. The Japanese company insists Western Digital is powerless to block the sale -- not least because, in early June, Toshiba proper transferred back from Toshiba Memory a stake in a company that holds rights to use the Yokkaichi production facilities.
Yet the Japanese conglomerate can only keep feuding with its American partner for so much longer. If the proceeds from the Toshiba Memory sale do not arrive by the end of March 2018, Toshiba would close out a second successive fiscal year with negative net worth -- a situation widely expected to lead to a delisting from the Tokyo Stock Exchange. And the prospect of a long legal battle could give the memory unit's potential buyers pause, enhancing Western Digital's power to shape the bidding process to its benefit. Many say reaching an understanding with the U.S. firm is in Toshiba's best interest.