Western Digital seeks injunction to block Toshiba chip sale

Western Digital Corp. has asked a court in California for an order to block the sale of the chip unit of Toshiba Corp., its partner in a manufacturing joint venture.

The U.S. company is trying to stop Toshiba from transferring joint ventures they operate together in preparation for a sale, it said in a statement Wednesday. Western Digital on Wednesday asked a San Francisco state court to keep the sale on hold while it pursues arbitration.

“Western Digital has been working tirelessly to reach an agreement that is beneficial to all stakeholders. Toshiba Corporation’s attempts to circumvent our contractual rights have left us with no choice but to take this action,” Western Digital CEO Steve Milligan said in the statement.

The companies are increasingly at odds as Toshiba tries to raise cash to plug a multibillion-dollar write-down following a disastrous investment in Westinghouse, its nuclear power equipment business. The legal step may add yet another impediment to an already complicated process.

“We cannot comment as we have not yet received the complaint,” said Kaori Hiraki, a spokeswoman for Toshiba. “We are proceeding with selecting the preferred bidder by the second half of June, and will seek to close the definitive agreement by June 28.”

Western Digital wants to make sure Toshiba’s chip operation isn’t bought by a competitor, a development that could disrupt its access to chips that are the future of the computer storage business that provides it with the majority of its revenue. The U.S. and Japanese companies have clashed over their agreement and what legal rights Western Digital has to have a say in the sale.

“Toshiba has no right to offer to transfer its joint venture interests to a third party and has no ability to enter into any transaction with a third party without obtaining our consent,” Western Digital said in the statement. “We are confident in our ability to protect our interests and rights.”

Milligan traveled to Tokyo last week to press for an acquisition of the division, as he continues to spar with Toshiba over the legality of the sale. Western Digital is planning to offer ¥2 trillion ($18.2 billion), a person familiar with the matter has said, but Toshiba is skeptical of the bid because of its financing and conditions.

Toshiba previously told Western Digital not to interfere in the sale and that it may take legal action. It also said the U.S. company failed to formalize their relationship after Western Digital became its flash-memory manufacturing partner upon acquiring SanDisk Corp. last year.

In a related development, sources said Wednesday that a Japan-U.S. consortium has decided to boost its bid for Toshiba’s flash memory unit to around ¥2.1 trillion in hopes of defeating rival Broadcom Ltd.

Four to five Japanese companies are also considering making investment by joining the team led by state-backed Innovation Network Corp. of Japan, the sources said. The INCJ is also considering bringing South Korean chip maker SK Hynix Inc. and U.S. investment fund Bain Capital into the consortium.

Earlier, Toshiba had hoped to make a decision this week as to which bidder should be awarded preferential negotiating rights. Now, the struggling electronics and machinery giant is seen delaying the decision to June 21 or later.

Toshiba wants to strike a deal to sell Toshiba Memory Corp. before the end of the month.

To maintain financing from its creditor banks, Toshiba needs to decide the buyer of the flash memory unit as soon as possible and present plans to resolve its negative net worth.

Broadcom is a major U.S. chipmaker, but it does not manufacture flash memory products. That would make it easy for its possible acquisition of the Toshiba unit to clear antitrust screenings.

In addition, Broadcom has offered to buy Toshiba Memory for over ¥2 trillion, meeting Toshiba’s hope to sell the unit as soon as possible and at the highest price available.

A financial source views Broadcom as the leading candidate.

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