Saturday 18 January 2020

Toshiba's €15bn chip sale hits more delays

Missed deadline will push disposal back a month

Nobuaki Kurumatani takes over as CEO of tech giant Toshia Corporation today (Bloomberg)
Nobuaki Kurumatani takes over as CEO of tech giant Toshia Corporation today (Bloomberg)

Pavel Alpeyev and Yuki Furukawa

After waiting more than a year to learn the fate of its memory chip business, Toshiba Corp investors are going to have to hold on a little longer.

The Japanese technology giant said that it has missed an initial deadline to close the two trillion yen (€15bn) sale of the division by the end of March, which has pushed back the disposal of its biggest business by at least a month.

The deal, with a group led by Bain Capital, has so far failed to win approval by Chinese regulators as they weighed the full impact on the world's biggest market for semiconductors.

Under the agreement's terms, the new deadline for closing would then be May 1, and Toshiba would need regulatory approval by April 13 to meet that.

Toshiba, which invented NAND chip technology, put the memory business on the auction block in 2017 as it sought to repair a balance sheet hammered by billions of euro worth of losses from a push into nuclear energy.

If the Bain deal falls apart, Toshiba has at least three options. It could renegotiate the terms, potentially at a higher price, take the memory chip business public, or retain the division.

"Most investors operate under an assumption that the sale will eventually go through," said Hideki Yasuda, an analyst at Ace Research Institute. "But if it doesn't, there is really no downside for Toshiba."

Officials at China's Ministry of Commerce are understood to be concerned about the role of SK Hynix Inc, which is part of Bain's group. The South Korean chipmaker may end up with a significant stake in the business, consolidating power among the top players, people who are familiar with the matter have said.

The ministry could also impose conditions that would materially affect the value of the business, such as requiring Toshiba to freeze prices or separate its solid state disk and chip memory operations.

Toshiba has yet to obtain approval from "some antitrust authorities". But it still plans to go ahead with the sale as soon as possible, the company said in a statement.

While the Tokyo-based company struck the deal with Bain when it was desperate to raise cash and avoid a de-listing, it no longer needs the money.

Toshiba boosted its capital with a 410bn yen nuclear asset sale, and 600bn yen of new stock. At the same time, the memory chip business has become even more valuable: it generated 205bn yen in operating income in the fiscal first half, almost 90pc of the company's total.

Making any changes would require navigating a broad group of stakeholders.

Sumitomo Mitsui Banking Corp and Mizuho Financial Group, Toshiba's main lenders, have helped the company to stay afloat and are keen to be repaid, Ace's Yasuda said.

The banks will play a key role in any decision and they won't easily change their support for the current terms of the deal, he said.

The deal's prospects beyond the May deadline become more murky.

The issuance of new shares in December brought in new shareholders who could take a more active role in the electronics maker's affairs.

A total of about 60 funds, including David Einhorn's Greenlight Capital, Daniel Loeb's Third Point and Effissimo Capital Management Pte, hold about a third of Toshiba. The company's new CEO, Nobuaki Kurumatani, takes up his role today.

A general shareholders meeting scheduled for late June could give them an opportunity to agitate for a better deal.

"These new shareholders bought in with expectations of growth," Yasuda said.

"They are the ones that are likely to think that Toshiba is better off with the chips as part of the group."



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