Toshiba board agrees to sell memory business to Bain-led group

Wednesday, the board of reeling technology giant Toshiba announced that it has approved the $18 billion sale of the company’s flash memory operation, Toshiba Memory Corporation (TMC), to a group of buyers that includes American venture capital firm Bain Capital, and a pair of government-owned Japanese organizations, the Innovation Network Corporation of Japan, the New York Times reports.

The Financial Times says the Japanese government’s involvement in the deal evinces the integrality of Toshiba’s success to the Japanese economy.

Toshiba is fighting to stay afloat after its nuclear power subsidiary, Westinghouse Electric Company, lost money on a number of ill-fated American nuclear projects. Westinghouse, which Toshiba acquired for $5.4 billion in Spring 2006, filed for bankruptcy protection in March.

Toshiba has entered survival mode, draining its cash reserves to remain operational. With the sale of TMC, the company is seeking to generate a short-term cash infusion that will facilitate a recovery.

According to the New York Times, Toshiba was in danger in March of being barred from the Tokyo Stock Exchange unless the company generated new capital.

Though Toshiba just created TMC in April, the company has been a major player in the flash memory sector since the inception of the technology.

A Toshiba engineer invented flash memory in 1980, and the company introduced the technology to the world in 1987. Since, Toshiba’s memory business has provided an integral revenue stream. Today, the company is the world’s second-largest producer of microchips, by volume, second only to South Korean competitor Samsung.

Flash memory is solid-state, meaning it stores data electronically rather than mechanically. Unlike RAM, another solid-state storage system, flash memory does not require power to preserve data, making it ideal for use in portable devices like digital cameras, video game consoles, smartphones, etc.

Even after the sale, Toshiba will likely maintain a significant amount of control over the business, though the buyers will take the lion’s share of the profits.

Toshiba has indicated plans to partner with Bain to create the special purpose company that will purchase TMC.

The new company—which Bain has dubbed Pangea, according to the Financial Timeshas received financial support from Apple, Dell, and others.

Analysts expect Toshiba to hold a minority stake in the new company, and to have considerable decision-making power.

The shareholder structure, the New York Times says, could allow Toshiba to maintain control of the new company’s operations. Buyers will get “a mix of regular shares, preferred shares — which normally do not carry voting rights — and bonds that could eventually be converted into shares.”

The sale awaits antitrust review and has attracted legal opposition from Western Digital, an American company that co-runs a joint microchip-production operation with Toshiba in Japan.

Western Digital claims that the partnership gives it a vested interest in Toshiba’s memory business and that Toshiba is not authorized to sell TMC without Western Digital’s approval. The American firm has initiated legal action to block the sale. The International Court of Arbitration is now reviewing the case.

Western Digital issued a statement Wednesday calling Toshiba’s pursuit of the selloff “troubling” and expressing confidence that the court would side with Western Digital.

Because the sale has yet to be finalized, the door remains open for Toshiba to negotiate with and field offers from other buyers.

A bidding war has been ongoing for the past several months.

Earlier this month, Taiwanese tech behemoth Foxconn, with the support of Apple, venture capital firm SoftBank and others, made a bid to buy TMC. The New York Times’ source says Foxconn offered a healthy sum, but that Japanese authorities feared selling to Foxconn would compromise the country’s leadership in the global technology market.

Western Digital been among TMC’s suitors.

Toshiba stock has dropped about 50 percent since April 2013. As of Thursday afternoon, shares are down 2.9 percent on the news.

Featured image via Wikimedia Commons

Toshiba Receives High Bids On Its Chip Business

The Japanese corporation, Toshiba, has been looking to raise around 300 billion yen from the sale of 19.9 percent stake toward its flash memory chip business. So far, Toshiba has only received bids of 200 million yen to 400 million yen ($1.8-3.6 billion) according to Reuters.

The price of 300 million would aid in the company’s offset of a multi-billion dollar writedown regarding its U.S. nuclear power business. The company’s U.S. nuclear power company has the potential to get rid of shareholder equity, which is the main concern for investors.

When it comes to bids, Toshiba has a few potential suitors for its chip which include its rival companies SK Hynix Inc and Micron Technology. Toshiba might be on the lookout for bids from many investment funds. That would allow for the company to follow through with the deal faster than if it would accept bids from peers who many have to ask permission from competitors before following through with the acquisition.

When questioned about the deal, one executive for Toshiba stated that the company will not only consider offer prices but other circumstances involving. Another spokesperson for the company said that Toshiba would not make any comments on the process it would be using to determine the sale to the bidder.

On Thursday, shares for Toshiba fell in Tokyo by 6.7 percent. That drop in shares came not too long after Mizuho Securities made it known that it was possible the type of impact Toshiba’s demotion to the second section of the stock exchange in Tokyo would have.

When the company reports its earnings, on February 14th, it also says it will disclose its writedown of its U.S. nuclear business. That number is estimated by sources to be around 700 million yen. It is also believed that Toshiba could possibly withhold on reporting its third quarter earnings but there’s no certainty of this will even occur.