Western Digital Corp. really wants Toshiba Corp.'s chip business.
It just doesn't want to pay for it. Well, it certainly doesn't want to pay the market price.
That's why the U.S. disk-drive maker is on the Japan PR circuit, which includes meeting reporters and name-dropping state-funded institutions as possible backers.
By market price, I mean the amount any bidder is willing to pay. That includes Foxconn Technology Group's reported offer of 3 trillion yen ($27 billion), which is more than 50 percent higher than Toshiba's current enterprise value. Western Digital's CEO Steve Milligan pulled the JV card earlier this month, writing to Toshiba's board that his company should get priority in negotiations because of their joint ownership of some chip operations, Bloomberg's Ian King reported.
Among the arguments was the notion that "rumored bidders were unsuitable and the reported prices offered were above the fair and supportable value of the chip business," King wrote, citing a person familiar with the process.
Translation: The others are all losers, and we don't want to pay as much as them anyway.
But Toshiba wants to sell to a local, so WD forming a consortium with Innovation Network Corp. of Japan and Development Bank of Japan Inc. helps tick the "Made in Japan" box on the bidding sheet. It also gives Toshiba a feasible alternative to the other foreign suitors that it would prefer not to entertain. Expect Foxconn to wave the Sharp Corp. flag.
But there's something troubling about this whole process. Toshiba's board has a responsibility to its shareholders, not to national pride, especially after burning through so much money in accounting scandals and the nuclear debacle.
If, as WD believes, Toshiba is getting offers "above the fair and supportable value of the chip business," then that's testament to the fact these bids are a damn good deal -- especially given that the division housing memory operations accounts for only a third of the Japanese company's revenue. It's not the board's job to worry about whether the buyer can make a go of it.
Equally, the suggestion that Toshiba must talk to WD first because of the manufacturing venture gives the board adequate cover to proclaim that its hands are tied and it can't entertain other offers, even if those bids are higher.
Handcuffs of convenience, I'd call it, and shareholders have already been shackled enough by Toshiba and its board. Time to set themselves free, and make some money in the process.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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Tim Culpan in Taipei at firstname.lastname@example.org
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