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It gets worse – now WD says Toshiba memory business sale breaches joint venture terms

This is exactly the opposite of non-volatility

Just when you think it can't get any worse... it does. Western Digital has warned Toshiba that the proposed sale of its memory business contravenes the terms of their flash foundry joint venture.

This NAND tech and products-based business has been set up as a separate company by Toshiba so that it can sell a large chunk for cash needed to recapitalise itself after monumental cost overruns in its now Chapter 11-filed Westinghouse Electric subsidiary in the USA. The whole Toshiba group is now facing financial meltdown with a potential ‎¥1 trillion loss for its current business year.

Selling a memory business stake, or the entire business, is the main event for Toshiba and that business, valued at $18bn, covers the flash foundry joint venture originally set up with SanDisk, which Western Digital acquired in 2015.

Among the bidders is Hon Hai (Foxconn), which has said it might pay up to $27bn (¥3 trillion) and that would likely secure Toshiba's future, were it not for the Japanese government disapproving of such a sale with the likely consequence of technology and jobs flowing into China.

Toshiba's shareholders, desperate for the health of their stock, would hope for the Japanese government to somehow kludge together state-influenced financial agencies to invest in the memory business alongside an American bidder, such as Broadcom, to make up some or all of the shortfall if the Hon Hai bid is rejected.

The original ten bidders have now been reduced to a shortlist of four: Broadcom (partnered with Silver Lake), Hon Hai, SK Hynix and WD.

Reuters reports that WD has sent a letter, from its CEO Stephen Milligan, to Toshiba's board of directors, which says the proposed memory business split-off constitutes a "very serious breach of joint venture agreements" and it cannot sit idle while Toshiba rides roughshod over its rights.

It did not threaten legal action and it wants to enter into exclusive talks with Toshiba, and asserts that the memory business auction bidding scheme is not in the best interests if Toshiba stakeholders. WD says the various bids, between ¥2-3 trillion yen ($18-27bn), are in excess of the chip business's fair and supportable value.

WD goes even further, according to Reuters, saying each of the reported bidders are problematic for the joint-venture, and the Japanese government. It singles out Broadcom, over which it has grave concerns based on recent commercial involvement.

Oops. Cue intensely serious negotiations between Toshiba and WD with lawyers poring over the JV contract terms to see what they say happens when there is such a disagreement.

Possibilities include the unwinding of the joint venture, its removal from the memory business sale, and even the prospect of WD owning the whole thing by buying out Toshiba's share. What a complicated muddle this Toshiba affair is turning into; the very opposite of non-volatility. ®

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