Faced with new bid, Toshiba looks set to miss chip sale deadline

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TOKYO (Reuters) – Toshiba Corp (6502.T) looks set to miss its own deadline of Aug 31 to agree an $17.3 billion sale of its chips business, a deal that would plug a gaping balance sheet hole and help the group avoid an embarrassing and potentially costly delisting.

Toshiba’s board had been expected to review an offer by a consortium led by Western Digital (WDC.O) on Thursday, though sources familiar with the matter said a deal was unlikely to be given final approval as the two have not agreed key details.

Further complicating matters, rival suitor Bain Capital made a revised last-minute offer for the unit, bringing in Apple Inc (AAPL.O) to help bolster its bid, sources with direct knowledge of the matter said late on Wednesday.

The Japanese conglomerate has been trying to sell its prized memory chip unit for months, in an attempt to pay down debt and cover the impact of more than $6 billion in liabilities linked to U.S. nuclear arm Westinghouse.

A senior banking official familiar with the talks said Toshiba was still likely to sign a deal with the Western Digital group, as legal challenges from Western Digital, seeking to safeguard its partnership with Toshiba, made it difficult to accept other any other offer.

But the delay means that even if a deal is eventually reached – the unit, in a highly competitive, cash-thirsty industry – will have endured months of uncertainty.

Toshiba may also fail to clear regulatory approvals by the end of the fiscal year in March. Without that, it would have to report negative net worth for the second year running and face a potential delisting, a blow to shareholders and a likely hit for the group’s funding costs.

Toshiba executives have been trying to sign a deal by the end of August because antitrust reviews by governments such as China could last more than six months.

Western Digital, along with U.S. private equity firm KKR & Co (KKR.N) and Japanese government investors, is offering a total of around 1.9 trillion yen ($17.3 billion) for Toshiba’s memory chip unit, sources have told Reuters.

Bain’s revised offer, including Apple, is worth some 2 trillion yen ($18.2 billion). Bain and South Korean chipmaker SK Hynix Inc (000660.KS) will be responsible for 1.1 trillion yen, the sources said.

Whatever the outcome in the sale, the deal will also have strained Toshiba and Western Digital’s partnership in NAND flash memory products.

Ties between the two companies have been strained since Western Digital bought SanDisk, Toshiba’s memory chip business partner for 17 years, in May last year as they failed to agree on terms of a new joint venture contract.

Analysts said the frayed trust and wasted time meant both Toshiba and Western Digital, the world’s No. 2 and No. 3 NAND flash memory producers, would fall further behind industry leader Samsung Electronics (005930.KS), which is pouring billions of dollars into production upgrades to stay ahead.

“Samsung has been buying up advanced production equipment for (next-generation) three-dimensional NAND chips to widen its lead,” Satoru Oyama, senior principal analyst at research firm IHS.

“Western Digital and Toshiba really need each other because they can’t compete against Samsung without partners,” he added.

Toshiba and Western digital had a combined market share of 31.9 percent in the April-June quarter, behind Samsung’s 38.3 percent, according to IHS.