Toshiba asset-swap shock: Western Digital is not impressed

Saucy Japanese chip-fryer tries to swallow its JV stake

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Loss-ridden Toshiba has pulled an unexpected move which it hopes will allow it to auction off its flash memory unit for a big pile of cash within the month. It says it has reabsorbed assets from its flash foundry JV with Western Digital Corp.

In a letter obtained by the Financial Times, Toshiba’s lawyers announced it is returning its interests in the joint venture with US chip manufacturer WDC back to the Toshiba conglomerate. Toshiba still believes it is not in breach of any agreements, but that the transfer puts the issue “to rest.”

The Japanese firm will be hoping this will allow it to flog the $18bn memory biz unit without having to negotiate with WDC under the terms of the JV. Crucially, the venture includes Tosh's largest chip-manufacturing plant in Yokkaichi, Japan. Toshiba and Western Dig also operate three other memory chip plants, also in Yokkaichi.

Of course this does not satisfy Western Digital, which is continuing its arbitration claim. “Based on the letter, Western Digital has no reason to believe that Toshiba has resolved its breach of the JV agreements,” it told the FT.

According to Reuters, the assets transferred back to the larger Toshiba conglomerate were "financing vehicles for manufacturing equipment and account[ed] for less than 5 per cent of Toshiba's memory chip business".

As of 12 May, there are already five bids for Toshiba's memory business, but Western Digital is arguing that its stake in the joint venture gives it the right to veto any sale. Toshiba disagrees, but the conflict has made it difficult to finish the auction — and Toshiba only has until March 2018 or it might face equity problems or stock delisting.

The Japanese conglomerate’s financial problems originate in overruns and losses from its US-based subsidiary for building nuclear power stations, Westinghouse Electric, which has filed for Chapter 11 bankruptcy. Some estimate the losses to be around $9bn (¥1 trillion). ®

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