Toshiba, Western Digital talking again but they'd better agree lickety-split

Pair chase deal on flash stakes sale before month's out

Toshiba has restarted talks with Western Digital Corporation about buying its flash joint-venture interests after their CEOs met in Tokyo.

Toshiba and WDC have a set of joint ventures based on the Yokkaichi flash foundry in Japan's Mie Prefecture. Facing a crippling need to recapitalise after its US nuclear power station-building business failed, Toshiba has been trying to auction its joint-venture interests to outside bidders. That induced WDC to take an antagonistic legal route, saying Tosh had no right to sell its JV interests without WDC's consent.

It sued and brought in the International Arbitration court. Tosh counter sued, and WDC counter-counter sued. Legal pressure seems to have persuaded Tosh to get back around the negotiation table.

Japan's Nikkei media outlet reports that Toshiba is now prioritising talks with WDC and hopes to agree a sale by the end of August. A sale needs to be closed by March 2018 to avoid Toshiba being delisted by the Tokyo Stock Exchange through having negative net worth.

With a bid involving WDC needing to gain regulatory approval, which could take six to nine months, the speed with which a bid agreement can be reached is crucial.

A tentative WDC bid group is emerging and includes US private equity house Kohlberg Kravis Roberts and two Japanese state-backed funds, the Innovation Network Corporation of Japan and the Development Bank of Japan.

There is mention of a ¥2tn ($18bn) bid with WDC having under 20 per cent of this, using debt financing. It wouldn't get voting rights at first and would take its <20 per cent stake after antitrust reviews had given the go-ahead.

WDC has been here before. It must be hoping that this will be its final go round the bid block. ®

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