Toshiba Misses Its Deadline for a Deal for Its Microchip Unit

Toshiba Misses Its Deadline for a Deal for Its Microchip Unit

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“Once again, I apologize deeply from my heart for causing so many problems,” Toshiba’s chief executive, Satoshi Tsunakawa, told hundreds of shareholders who gathered at a convention center outside Tokyo. Reporters were not allowed inside the meeting hall, but some shareholders recorded the proceedings on their phones and provided video to Japanese television networks.

Reporters were allowed to listen to an audio feed of the meeting provided by Toshiba. It suggested widespread dissatisfaction with management.

“This has become a third-rate company, but you have no sense of crisis,” one male shareholder, who was not identified, told executives during a question-and-answer period.

Toshiba has been stung by accounting irregularities and losses from nuclear power projects in the United States. To raise much-needed cash, it is selling a still-undisclosed portion of the microchip business, which makes NAND flash memory chips used in cellphones and other digital devices. Analysts say it could be worth about $18 billion.

Satoshi Tsunakawa, Toshiba’s president, in Tokyo on Friday. The company needs to complete a deal to fill a vast hole in its balance sheet.

Credit
Toshifumi Kitamura/Agence France-Presse — Getty Images

The buyers Toshiba chose last week include a Japanese government-controlled investment fund, the Innovation Network Corporation; the Development Bank of Japan, a state-owned bank; and the American buyout firm Bain Capital. The South Korean technology company SK Hynix is to provide financing for the deal.

The company needs a deal to fill a vast hole in its balance sheet. The losses at its American nuclear power division, Westinghouse Electric, have cast “substantial uncertainty” over the century-old company’s ability to stay in business, Toshiba has said in financial statements.

That has threatened the survival of a sprawling technology giant that has long been a pillar of Japanese industry.

“We are continuing to negotiate with the consortium,” Toshiba said in a news release on Wednesday, “but coordinating with its various members is taking time, and we have not reached an agreement.”

One factor complicating the chip sale has been Western Digital. The company is an owner, with Toshiba, of a NAND production operation in Japan that is part of Toshiba’s larger microchip subsidiary. Western Digital argues that Toshiba cannot sell the subsidiary to an outside party without its approval.

On Wednesday, Western Digital said it had made a renewed offer with its partner in the bid, the American investment firm Kohlberg Kravis Roberts. It did not disclose terms, except to say that it was willing to provide Toshiba with debt financing.

“Western Digital continues to believe it is the best partner to advance Toshiba’s legacy of technology innovation in Japan,” Western Digital said in a statement.

Two people familiar with the sale process who were not authorized to speak to the news media have said Western Digital is offering less money than the consortium Toshiba favors. That has left Toshiba with a dilemma: accept a lower offer, or take the higher one and risk what could be a long and costly legal fight with Western Digital.

Western Digital has asked a California state court to block any sale while also pursuing arbitration in the International Court of Arbitration, based in Paris. A hearing is scheduled for July 14.

Toshiba’s countersuit, announced Wednesday, asks the Tokyo District Court to issue an injunction against “acts of unfair competition” by Western Digital and seeks damages of about $1 billion. Toshiba accused Western Digital of improperly obtaining trade secrets from their joint venture and of “intentionally interfering” with the sale of the microchip unit by spreading “false claims” about the nature of its contracts with Toshiba.

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