Toshiba, Western Digital settle fight over chip unit sale

[TOKYO] Toshiba and Western Digital ended a months-long legal spat that had threatened to derail the US$18 billion sale of Toshiba's flash-memory business and cut the US company off from a future supply of vital new products.

Western Digital is dropping arbitration claims in the US that were aimed at stopping the sale to a consortium led by Bain Capital. In return, the Japanese company will end its legal claims against Western Digital, the two companies said in a statement. Western Digital will be able to invest alongside Toshiba in two new chip plants in Japan and receive a guaranteed supply of memory chips, they said. The US company's shares rose more than 3 percent in late trading.

The partners have been locked in a legal battle since early this year after Toshiba said it would sell the chip business to pay for enormous losses in its nuclear division. The US company had argued Toshiba needed its consent to sell the business, an assertion the Japanese company disputed. Toshiba needed to raise capital to avoid seeing its shares delisted from the Tokyo Stock Exchange.

"As we at some point in the process moved down the litigation path, that was not our preferred path, that was not what we wanted to do," Steve Milligan, Western Digital's chief executive officer, said in a conference call. "We're very pleased to be able to resolve this and put it behind us."

Western Digital had injected itself into Toshiba's attempts to find a buyer, tried to join a rival bidding consortium and, according to the Toshiba side, made the whole process more difficult. For Milligan, the settlement preserves the value of the nearly US$16 billion he spent on SanDisk, which was the original joint venture partner with Toshiba. Those three original agreements made by SanDisk were today extended, with the first one expiring in 2027.

Toshiba had stepped up pressure on San Jose, California-based Western Digital in recent weeks. Last month, the Tokyo-based company said it would accelerate investments in its new Fab 6 chip facility in Yokkaichi, blocking Western Digital from participating and raising the prospect the US company wouldn't get supplies of newer chips that it will need to remain competitive. Toshiba also unveiled plans to raise 600 billion yen (S$7.15 billion) in a stock sale, a deal that would help it avoid delisting even if the chip business sale isn't completed on time.

Under the settlement terms, Western Digital will get extensions of its existing joint ventures and will resume sharing the bill for equipment used in the Japanese plants, providing access to technology that's the future of its business. The US company uses that supply in new storage devices that are taking over its main business, replacing spinning magnetic disks with silicon-based drives. It will get output from the new Fab 6 from the second half of next year, it said in a regulatory filing.

In the conference call, Western Digital said it now sees adjusted earnings per share of US$3.80 in the fiscal second quarter, compared with an earlier forecast of US$3.60 to US$3.70.

Toshiba shares have risen 12 per cent since Bloomberg News reported the two sides were near a resolution. The stock rose two per cent in Tokyo trading Wednesday.

Toshiba's earnings results last month underscored the importance of the semiconductor unit. Profit in the memory business quadrupled to 205 billion yen in the first half of the fiscal year, helped by demand for data storage in smartphones and solid state disks. The division accounted for 88 percent of the company's operating income.

Toshiba agreed in September to sell the business to a group of investors, including Bain, Apple, Dell and South Korea's SK Hynix. The deal is structured so that Toshiba and Hoya will hold a majority of the voting stock, a solution that keeps control of sensitive technology in Japanese hands. The transaction is still subject to regulatory approvals.

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