Western Digital sues Toshiba

The struggling Japanese industrial giant said Wednesday it had picked a consortium led by Bain Capital as the leading candidate to buy its prized chip business in a deal reportedly worth some $18 billion (15 billion euros). The group around the US private equity firm includes the state-owned Development Bank of Japan and South Korean chipmaker SK Hynix.

Toshiba said in a statement that its board of directors had "determined to continue negotiations with the Bain-led consortium," after the firm reportedly raised its bid to 22.3 billion. However, the Toshiba statement stressed that the agreement was "non-exclusive," meaning it wouldn't eliminate the possibility of negotiations with the other bidders.

The other two bidding groups in the race for Toshiba's chip division are Taiwan's Hon Hai Precision, better known as Foxconn, and a consortium led by Western Digital.

Western Digital voiced disappointment but stressed it had not given up on its bid. "We are disappointed that Toshiba would take this action despite Western Digital's tireless efforts to reach a resolution that is in the best interests of all stakeholders," it said in a statement.

At the same time, the California-based company, which already has a chip-making partnership with Toshiba, has begun legal action, opposing the sale to anyone else.

A matter of survival

Toshiba is the world's second largest supplier of memory chips, behind South Korean titan Samsung. Selling the profitable chip division is seen as key to Toshiba's survival, as one of Japan's best-known firms battles to recover from multi-billion-dollar losses from US nuclear operations.

The Japanese consortium sank into the red for the fiscal year after its loss-making US subsidiary, Westinghouse Electric, filed for bankruptcy protection in March.

Toshiba also faces the humiliating prospect of being delisted from Japan's stock exchange if the sale does not raise sufficient funds by an end-March cut-off date for closing accounts.

Some analysts warn though, the Japanese shouldn't sell off its chip business - which accounts for around one-quarter of its total annual revenue - too cheap.

Masahiko Ishino, an analyst at Tokai Tokyo Research Center, said this would not go down well with shareholders. "For shareholders, it doesn't make sense to give the treasure trove to someone else," he told the news agency AFP.

In its statement, Toshiba did not mention US tech giant Apple, which has joined the Bain-led consortium, according to reports in Japan's Nikkei business daily and top-selling Yomiuri newspaper. Apple relies on Toshiba's memory chips for iPhones and iPods, and wants a continued supply so it is not dependent on rival Samsung Electronics.

uhe/tr (Reuters, AFP, AP)