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4-Traders Homepage  >  Equities  >  Tokyo  >  Toshiba Corp    6502   JP3592200004

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Toshiba Sale Of Chip Unit Faces Hurdles -- WSJ

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09/29/2017 | 08:48am CEST
By Takashi Mochizuki and Kosaku Narioka 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (September 29, 2017).

TOKYO -- A nearly $18 billion deal for Toshiba Corp.'s memory-chip unit could strengthen the No. 2 player in a fast-growing industry -- if the deal survives regulatory and legal hurdles.

Eight months after Toshiba said it wanted to sell part of the unit, it finally signed a contract with a buyer Thursday. The buyer group is led by Bain Capital LLC and will get financing from Apple Inc., South Korean chip maker SK Hynix Inc. and other major technology companies.

If the deal closes by next March 31, Toshiba's target date, it is set to bring the troubled industrial conglomerate's balance sheet back into the black.

Several of the companies involved in the buyer group are big customers for the unit's NAND flash-memory chips and are hoping to bolster Toshiba, a distant No. 2 to industry leader Samsung Electronics Co. The chips are used in a broad range of electronics from smartphones to computer servers.

Seagate Technology PLC, a maker of computer storage products that joined the Bain-led consortium, said need for the chips was growing.

"We must be able to support these demands," said Chief Executive Steve Luczo.

The deal, if completed, will also create a loose alliance between Toshiba and SK Hynix, which is No. 5 in NAND flash memory, according to IHS Markit. The South Korean company is providing about $3.5 billion in financing for the Bain alliance and is taking bonds convertible into a stake of as much as 15% in the Toshiba chip unit.

"The sale was a great opportunity for SK Hynix to catch up in the NAND market and increase its presence in the broader computer chip market," said Satoru Oyama, chief executive of Tokyo-based consulting firm Grossberg. SK Hynix is already second to Samsung in DRAM, another kind of memory chip.

But Mr. Oyama said he saw a high risk of the Bain deal failing to go through because of objections by Western Digital Corp., Toshiba's partner in operating the flash-memory business. He said SK Hynix would want to look for a plan B such as talking with others in the market about partnerships.

Western Digital contends it has the right to veto the sale of the chip unit and has brought a case at the International Court of Arbitration. Toshiba says Western Digital doesn't have any veto right.

If the arbitration panel orders Toshiba not to sell part of its memory-chip unit, the Bain-led group would subtract that part's value from the sale price, Toshiba said. Even so, a Toshiba spokesman said the company expected it would get enough cash to put its balance sheet back in the black by March 31.

Another hurdle is antitrust clearance, especially because of the involvement of SK Hynix. To ease antitrust concerns, Toshiba pledged that SK Hynix wouldn't be able to access the unit's chip technology or raise its stake beyond 15% for the next 10 years.

Toshiba was the creator of NAND flash memory and long a leader in the technology. But it fell behind Samsung in part because the memory-chip plants require frequent multibillion-dollar investments to keep pace. Those investments became more difficult in recent years as Toshiba focused on its nuclear-plant business -- another heavy user of capital.

When Toshiba's U.S. nuclear unit, Westinghouse Electric Co., filed for bankruptcy protection in March, it was clear that the chip unit could stay abreast of rivals only with a large infusion of money from the outside.

The unit lost precious months as Toshiba executives, bankers and government officials debated who was the worthiest buyer. People familiar with the business said it has lost some engineers with expertise and fell behind Samsung in buying equipment needed to make the latest chips, which is itself in short supply. A Toshiba spokesman said the company believes it has secured the equipment it needs.

Last month, Toshiba said it would spend about $1.6 billion to beef up capacity at its main factory in Yokkaichi, central Japan, and earlier this month it said it would open a new location in northern Japan by the end of next year to meet rising demand.

One person familiar with the buyer group's plans said it envisioned $15 billion to $20 billion in capital expenditures over the next five years. The group is looking at a possible listing of the chip unit, but it wouldn't happen for at least two years, this person said.

Under the contract signed Thursday, Bain will hold 49.9% of the chip unit's voting shares, with Toshiba retaining 40.2% and Japan's Hoya Corp. holding the rest. Apple, Seagate, Kingston Technology Corp. and Dell Technologies Inc. will together provide about $3.7 billion in financing, but those companies won't take voting stakes.

Write to Takashi Mochizuki at [email protected] and Kosaku Narioka at [email protected]

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Financials ( JPY)
Sales 2018 5 044 B
EBIT 2018 -
Net income 2018 405 B
Debt 2018 227 B
Yield 2018 0,12%
P/E ratio 2018 5,73
P/E ratio 2019 19,26
EV / Sales 2018 0,33x
EV / Sales 2019 0,38x
Capitalization 1 420 B
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Number of Analysts 11
Average target price 338  JPY
Spread / Average Target 1,00%
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Satoshi Tsunakawa Executive President & Director
Masayoshi Hirata Chief Financial Officer & Director
Naoto Nishida Senior Managing Executive Officer
Yasuo Naruke Director & Representative Executive Vice President
Kouichi Ikeda Independent Outside Director
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