Yokkaichi1
(Image courtesy of Toshiba).

Western Digital Could Throw Wrench in Toshiba's Tentative Deal

Last week, Toshiba agreed to sell its memory chip unit for almost $18 billion to Bain Capital's cronies. The Japanese conglomerate also drafted an intricate plan to buy stock in a holding company owned by the American investment firm, giving it some influence over the business.

None of that sits well with Western Digital.

On Tuesday, the company said that it was looking for an injunction to block Toshiba’s sale. For months, Western Digital has argued that it should have final word on the sale because it shares ownership of factories with Toshiba, which is trying to raise enough money to fill massive losses in its nuclear power business.

Western Digital said that it had filed three requests with the International Court of Arbitration and that it is still working with Toshiba to choose arbitrators to oversee the cases. It added that final rulings could take more than 24 months due to the complexity of international arbitration.

The lawsuits could complicate Toshiba’s sale to Bain, which partnered on the deal with SK Hynix and two funds owned by the Japanese government, the Innovation Network Corporation of Japan and the Development Bank of Japan. Toshiba said that it wants to close the transaction by March.

The deal came after months of contentious bidding over the Japanese conglomerate’s memory business, the world’s second biggest producer of NAND flash for smartphones and other gadgets. Western Digital mustered its own bid last month along with the investment firm Kohlberg Kravis Roberts. Toshiba's board moved on after missing an internal deadline to complete a deal.

Western Digital has been vehemently opposed to the Bain deal, arguing that it raises the risk of technology leaking to its rival SK Hynix. The sale also comes as the memory market goes through a major surge, and memory chipmakers are looking to lock down manufacturing output.

In July, the company sought an injunction from a California court to stop Toshiba shutting out employees from a shared database and refusing to ship sample wafers of 3D NAND flash. The court ordered Toshiba to cooperate with Western Digital while it weighed a final injunction.

Western Digital requested another injunction last week to block Toshiba from investing around $1.76 billion in its newest fab in the Japanese city of Yokkaichi alone. Western Digital inherited ownership of the plant when it paid $16 billion in 2015 for SanDisk, which established the joint venture with Toshiba in 2000.

In an August statement, Toshiba denied that Western Digital had any right to participate the investment, which would go toward equipment for making 3D NAND chips with up to 96 layers. Toshiba said that it had failed to reach an agreement with Western Digital on the investment.

“Absent any willingness on Toshiba’s part to resolve this matter with its [joint venture] partner in a constructive manner, we intend to continue our successful legal efforts into the binding arbitration process,” said John Hueston, Western Digital’s counsel and a partner with law firm Hueston Hennigan, in a statement.

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