Toshiba’s U.S. partner Western Digital seeks right to have say in sale of chip unit

Troubled conglomerate Toshiba Corp. on Monday said it will delay reporting its annual earnings for the recently ended fiscal year, but warned that it will likely book a net loss of ¥950 billion.

The delay comes after it twice postponed its nine-month earnings before releasing unaudited results last month, stirring fears that its shares could be delisted from the Tokyo Stock Exchange

Meanwhile, its U.S. partner, California-based Western Digital Corp., is taking legal action to try to guarantee a say in who gets to buy the chip unit of Toshiba, its partner in a manufacturing joint venture. The company will invoke an arbitration clause in their business agreement, which could postpone a sale Toshiba needs to complete quickly.

As Toshiba looks to sell the semiconductor business, the technology giant transferred ownership of the unit to a separate legal entity but didn’t get permission before doing so, according to Western Digital. The two should enter binding arbitration to resolve the dispute, Western Digital said.

The companies are increasingly at odds as Toshiba tries to raise cash needed to keep itself afloat following a disastrous investment in nuclear power. The joint venture may find itself at risk if Toshiba’s chip-making operation is snapped up by a Western Digital competitor.

Western Digital executives have described Toshiba’s situation as “desperate.”

“We firmly believe that we provide Toshiba with the optimal solution to address its challenges and that we are the best partner to advance its legacy of technology innovation in Japan,” Western Digital Chief Executive Officer Steve Milligan said in a statement. “Toshiba’s attempt to spin out its joint venture interests into an affiliate and then sell that affiliate is explicitly prohibited without SanDisk’s consent.”

Toshiba previously told Western Digital not to interfere in the sale plans and that it may resort to legal action. It has also threatened to lock out Western Digital staff from manufacturing facilities in Japan.

Arbitration will take place in San Francisco, Western Digital said. Each side will propose one member of the three-person panel. The third, who will serve as chairman, will be chosen by either the two other members or the International Chamber of Commerce, which will oversee the arbitration. The process can take as long as a year. Any move that undermines arbitration, such as a sale of the unit before the panel reaches a decision, could allow the issue to go to court.

The type of chip produced by the joint venture, known as flash memory, is enjoying a bumper year.

Micron Technology Inc., Samsung Electronics Co. and SK Hynix Inc. have all reported strong demand for the product as the industry moves away from magnetic disks in computer storage.

Toshiba’s sale has garnered significant interest, with bids as high as $27 billion from Hon Hai Precision Industry Co., Bloomberg reported last month. Other bidders include SK Hynix and Broadcom Ltd.

Mark Long, chief financial officer of Western Digital, said this month that “each of the rumored bidders is problematic.” The company has talked to all of the prospective buyers in a bid to find a solution.

Western Digital has held discussions with Innovation Network Corp. and Development Bank of Japan Inc. about options for making a bid of its own. It hopes to secure exclusivity with Toshiba and has argued that a sale to a third party is in breach of their joint-venture agreement — a claim that the Japanese side disputes.

Toshiba is selling assets to contend with writedowns in its Westinghouse nuclear business, stemming from excessive costs and construction delays.

Toshiba put Westinghouse into Chapter 11 bankruptcy protection and said it may take a loss of as much as ¥1.01 trillion ($8.9 billion) for the year that ended in March.

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