Toshiba prioritizes talks with Western Digital on chips business: Nikkei

TOKYO (Reuters) - Japan's Toshiba Corp is prioritizing talks with Western Digital to sell its memory chip business, as negotiations with a previously preferred bidder have stalled, the Nikkei business daily reported on Wednesday.

Toshiba is scrambling to sell its flash memory unit to cover losses from its bankrupt U.S. nuclear business Westinghouse. In June, it picked a consortium including Japanese government-backed funds, private equity firm Bain Capital and South Korean chip maker SK Hynix as a preferred bidder.

But Western Digital, which jointly invests in Toshiba's main chip plant, took Toshiba to court, arguing it needs to consent to a sale. The battle unnerved the state-backed funds, which demanded that Toshiba resolve the conflict before the sale.

Sources previously told Reuters that Toshiba had begun talks with Western Digital as well as Foxconn in an attempt to revive the stalled talks, and that it aimed for a deal around late August.

Western Digital is offering nearly 2 trillion yen ($18 billion) and would form an alliance with U.S. private equity firm KKR & Co as well as the two Japanese government funds that are part of the preferred bidder group, the sources have said, requesting anonymity because they were not authorized to speak with media.

The Nikkei, without citing sources, said Toshiba CEO Satoshi Tsunakawa told lenders that it would focus on pushing ahead with Western Digital.

The U.S. company planned to take a stake of less than 20 percent, the report said.

Toshiba wants to close the sale by the end of the fiscal year in March, to ensure it does not report negative net worth - liabilities exceeding assets - for a second year running. Back-to-back years of negative net worth would prompt a delisting from the Tokyo Stock Exchange.

Given regulatory approvals could take over six months, the company has been hoping to reach a deal by the end of the month to ensure it can close the sale by end-March.