Apple-backed billionaire makes case to buy Toshiba chip unit

[BEIJING] Terry Gou, the billionaire behind Apple Inc's iPhone factories, is pressing his case to acquire Toshiba Corp's memory chips business for 2.1 trillion yen (S$26.1 billion) in a last-ditch effort to beat out two American buyout firms in the tumultuous auction.

Mr Gou's Foxconn Technology Group has broad support for its offer from Apple, SoftBank Group Corp and Sharp Corp and is ready to proceed right away, said Louis Woo, a spokesman for the company, whose primary listed arm is Hon Hai Precision Industry Co. The price tag compares with a rival bid led by Bain Capital said to be worth around 2.1 trillion yen and one from a KKR & Co-led group said to be about 2 trillion yen.

"The bid speaks for itself. It is deal certainty," said Mr Woo. "What this customer consortium means is that it will provide steady funds to Toshiba to advance their R&D. At the same time, it's a guarantee there will be more customers lining up to buy their products when they increase their capacity or have better products." Toshiba declined to comment. The industrial and electronics manufacturer is still negotiating with three groups in the auction of its most valuable business, after failing to secure a final deal with the preferred bidder it selected in June. The effort has been hampered by political opposition and litigation from partner Western Digital Corp. Japanese government officials have opposed selling the chips unit to Foxconn because of its close ties to China, home to much of the Taiwanese company's sprawling manufacturing operation.

Mr Gou won control of Osaka-based Sharp after protracted negotiations in which politics also played a key role. Mr Woo detailed the proposed ownership of Toshiba to make the case it is not a Chinese or even Taiwanese bid. Foxconn would hold 25 per cent of the equity, Apple 20 per cent, Kingston Technology Co. 20 per cent, Sharp 15 per cent, SoftBank 10 per cent and Toshiba would keep 10 per cent, he said.

"We just hope the board directors of Toshiba will make a decision on commercial terms, on business terms, on technology terms, rather than political terms," Mr Woo said.

Toshiba needs to raise the money by March to repair its balance sheet and avoid being delisted from the Tokyo Stock Exchange. Any delay could result in it missing that deadline because of the time needed to get regulatory approval and close the deal.

Mr Woo also made the case that Toshiba is risking its future by delaying. Besides the risk of delisting, he said Toshiba's chips business will fall behind if it can't make investments quickly.

He specifically pointed to Samsung Electronics Co's announcement last month that it will invest US$7 billion on a new fabrication facility in Xi'an, China, as a warning shot for Toshiba. Samsung is the largest maker of memory chips and the plant will focus on NAND flash, the core product of Toshiba's business.

"You are jeopardizing your future, you are jeopardizing your competitiveness," Mr Woo said.

Any successful bidder would need to stump up enough cash to repair Toshiba's finances and make major investments in the business, the Japanese company has said. This week, it said it's going ahead with construction on a new flash-memory plant in northern Japan while it prepares to expand its Yokkaichi semiconductor facility in the country's west.

The Foxconn group consists of customers that Mr Woo says will help create long-term, stable demand for chipsets, while the other consortiums are led by bankers who will look to cash out, he said. Apple depends on flash memory from Toshiba in its iPhones and iPods, and wants a continued supply so it's not dependent on Samsung, a rival in the smartphone business.

"We are offering something that I don't think anyone can refuse," said Mr Woo.

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