Toshiba Corp. finally sold its chip division.
Except, it didn't.
Hidden among the various confusing statements from the Japanese company and other parties to the deal is the fact that the seller managed to maintain effective control of Toshiba Memory Corp. while still extracting 2 trillion yen ($17.7 billion) to help plug that massive hole in its balance sheet.
While everyone was led to believe that Toshiba would be selling off most, if not all, of its prized semiconductor division, the final deal outlined Thursday has the struggling company getting to keep 40.2 percent.
And in a marvelous feat of financial engineering, little-known compatriot Hoya Corp. puts in around 1.4 percent of the money but gets to take 9.9 percent of the equity. That oversized interest wasn't even mentioned in Toshiba's statement, but came out of a press release from SK Hynix Inc.
In the end, Bain Capital Private Equity and its coterie only secured 49.9 percent of the target. The ownership split among these deal partners is wrapped in secrecy, but we do know roughly who is putting in what -- SK Hynix at 395 billion yen is stumping up the largest amount of cash, but is accepting limits on its equity stake to avoid antitrust issues. Apple Inc. will write a check for 165 billion yen.
While it's true that no individual shareholder will have a majority, you can bet that Hoya being gifted such a large piece of the pie won't be voting with Bain if push comes to shove. The end result: Japan Inc. wins by holding onto this crown jewel, and pushing its valuation to $36 billion.
Talk has already begun on when an IPO may happen. People familiar with the matter told Bloomberg's Pavel Alpeyev and Yuki Furukawa that Bain is aiming for a listing two to three years after the deal's closing, which points to around 2020. Bain will be limited in how much it can dictate that timeline, but Toshiba will likely be on board because a public sale should boost the value of its holdings.
Here at Gadfly we're predicting that Toshiba will find a way to get its stake back over the halfway point and regain absolute control. It could do that by buying Hoya's share, buying from the Bain consortium, or as part of an eventual IPO, or a combination of all three.
That's not to say Bain lost out. Toshiba didn't sell to the highest bidder (Foxconn Technology Group would have offered more), which means there's potential upside for when the private equity group decides to sell back to Toshiba, or the capital markets (or both). So don't worry about Bain, it's likely to come out of this quite nicely.
And shed no tears for Toshiba either. While it says that it sold its chip division, it didn't really. It merely pawned it to Bain until it can afford to buy it back again.
-- With assistance from Nisha Gopalan.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
TMC's shares are being transfered to a new company called Pangea, and Pangea will in turn be owned by Toshiba, Bain etc.
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