Deals

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

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.

Toshiba Corp. looks to be selling everything. Except its chip business.

If ever there was a sign the embattled Japanese firm doesn't expect -- or dare we say it, want -- to offload its prized unit to Bain Capital LP and friends, it's the garage sale that was suddenly launched Sunday.

Toshiba announced plans to sell 600 billion yen ($5.4 billion) of new shares by Dec. 5. In a separate statement, the company said it may jettison some of the assets in its Westinghouse operations, the struggling nuclear business that started the mess in the first place. Last week, Toshiba said it was selling its once-famous television arm to Chinese electronics group Hisense Electric Co. for 12.9 billion yen.

Everything you need to know about these moves is outlined in one paragraph from Toshiba here:

If the financing successfully completes, and the claims against Westinghouse and interests related to Westinghouse are sold, it is expected that 750 billion yen of negative consolidated balance sheet will be remedied as of the end of March 31, 2018, and thereby Toshiba's pressing challenge will be resolved.

But what of the 2 trillion yen deal Toshiba inked for 49.9 percent of its chip operations? That unit is Toshiba's crown jewel, contributing 18.4 percent of total sales but almost 70 percent of operating profit last fiscal year.

A Big Plug
Toshiba needs to fill a 750-billion-yen hole from its nuclear unit. It could get there by selling its chip business, or it could sell shares and its claims against Westinghouse
Source: Bloomberg

There are already two forces standing in the way of the transaction being done soon, if at all.

First, antitrust regulators globally will have to sign off on the deal. China's Ministry of Commerce, for instance, may have a problem with some of the Bain consortium members, such as Apple Inc. or Dell Inc. In the mix is also SK Hynix Inc., one of the world's largest chipmakers and South Korean to boot. Relations between Beijing and Seoul aren't exactly smooth right now.

Second, Western Digital Corp., Toshiba's memory-venture partner that failed in its own attempt to win the chip business, is fighting the sale in the U.S. The pair may still resolve the legal feud, but until they do, the clock will keep ticking.

Sell Out
Investors didn't take news of a share sale too well, driving Toshiba's stock down as much as 6.5 percent on Nov. 20
Source: Bloomberg

By selling shares, and the rights to any upside from its Westinghouse legal battles, Toshiba makes the chip sale less pressing. Gadfly has argued before that Toshiba was merely pawning the business anyway.

Investor reaction to Sunday's news was negative, as was to be expected. But if this transpires to be a way for Toshiba to avoid selling its most profitable business, that sour mood may turn pretty quick.

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

To contact the authors of this story:
Tim Culpan in Taipei at tculpan1@bloomberg.net
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

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