Deals

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

Forced sellers tend not to be too picky, as Toshiba Corp.'s mooted sale of the electronic-metering company it owns with Innovation Network Corp. of Japan shows.

But there are at least two reasons why a $2 billion jettisoning of Landis+Gyr to CVC Capital Partners and Hitachi Ltd. makes sense.

For one, it raises some much-needed money for Toshiba, even if it's just a pittance compared with the $9.2 billion in losses the Tokyo-based firm expects for the year that ended in March. And if INCJ sells, that could smooth the path for Toshiba to offload its flagship $20 billion chip business.

In the Red
Toshiba's losses have been deepening
Source: Bloomberg

In order to contend with the bankruptcy of its Westinghouse nuclear unit, Toshiba needs all the money it can get. It purchased Landis+Gyr in 2011 for $2.3 billion to boost its energy-management sales, and now owns a 60 percent stake. Offloading that, even at a loss, gets it out of a highly capital-intensive business.

On the Block
Once a serial acquirer, Toshiba, has been ramping up asset sales
Source: Bloomberg

INCJ would be the other beneficiary of any sale. The government-backed group was established in 2009 with 2 trillion yen ($18 billion), ostensibly to promote technologies of the future. However, it's largely acted as a bailout fund for Japan's struggling electronics businesses. Its biggest deal so far, after losing a bidding war with Taiwan's Foxconn Technology Group for Sharp Corp. last year, has been the creation of Japan Display Inc., formed by merging the troubled screen-manufacturing units of Toshiba, Sony Corp. and Hitachi.

According to Nikkei, INCJ is considering partnering with private equity firm KKR & Co. to make a bid for Toshiba's chip unit. Such a pairing would provide a neat solution to Tokyo's worries about the prized asset falling into foreign hands. They include Foxconn, whose ties with China make it an unpalatable option. And Foxconn, which employs about a million workers on the mainland, has a history of renegotiating prices lower.

While it's unlikely a U.S. suitor would have problems from a Japanese national security standpoint, that's not to say the two in the running will have an easy ride.

San Jose, California-based Western Digital Corp. can't afford to bid too high after the acquisition of SanDisk Corp. strained its balance sheet. (Western Digital became Toshiba's manufacturing partner in the flash-memory business when it bought SanDisk for $15.8 billion last year.) And Broadcom Ltd. will have its work cut out after Western Digital raised objections -- singling out Broadcom in particular -- in a letter to Toshiba's board earlier this month.

INCJ could probably find the money if it really needs, considering its government ties. But getting funds from the sale of Zug, Switzerland-based Landis+Gyr would give it instant firepower, and even a blip of good news would brighten Toshiba's day.

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

To contact the author of this story:
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net