Giant check

Money Talks in Toshiba Chip Fight

This is looking like a replay of the Sharp takeover.
At Closing, April 25th
300.00 JPY
At Closing, April 25th
3340.00 JPY

Many investors will spend Tuesday gazing at Toshiba Corp. and asking, "will they or won't they?" -- delay earnings again, that is.

Instead of wondering how deep a hole the Japanese company has dug for itself, the focus is now on how it's going to climb out.

Brown Out

Massive losses in the nuclear power business, and the bankruptcy of that unit, pummeled Toshiba's stock

Source: Bloomberg

Selling the chip business seems to offer the sturdiest ladder out of the mess, but both Toshiba and the government are being a bit fussy about which wall they want to lean it against -- that is, any bidder as long as they're Japanese. The signs are that Chinese suitors are the least welcome, a Western buyer would probably be OK, and a South Korean might be acceptable.

Most recently, Industry Minister Hiroshige Seko told a regular press conference that semiconductors are important to Japan's growth strategy. He quickly followed up by saying the government won't get between the company and the bidders.

Upsetting the apple cart is Terry Gou, chairman and founder of Foxconn Technology Group and its publicly traded flagship, Hon Hai Precision Industry Co.

The thing is, Gou is Taiwanese. That distinction is very clear in Japan, but the fact that Foxconn has most of its factories, assets and employees in China raises concerns.

Strong Buy

Foxconn has done some big deals, but none compares with its opening bid for Toshiba's semiconductor unit

Source: Bloomberg

The man who annoyed the Japanese establishment five years ago by insisting on a bid for Sharp Corp. has now come in to offer as much as 50 percent more for Toshiba's chip business than rival contenders including SK Hynix Inc. and Broadcom Ltd., Bloomberg News reported.

This means he can't be ignored. Were his bid close to or even marginally higher than others, there'd have been an opening for Toshiba to find reasons to disqualify Foxconn. At 3 trillion yen ($27 billion), they have to take Gou seriously, especially given his dogged and ultimately successful pursuit of Sharp.

The bid also forces Toshiba to seek higher offers from other suitors, quite possibly knocking some out of the race. That doesn't mean Foxconn will end up paying 3 trillion yen. You can be sure that some clauses, due diligence, and tough negotiating tactics will let Gou whittle that figure down, as he managed to do with Sharp.

As much as Toshiba and the government want to defend against a foreign takeover, Gou has the checkbook to win this battle.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Tim Culpan in Taipei at

    To contact the editor responsible for this story:
    Paul Sillitoe at

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