Toshiba Soars on Einhorn's Backing, Hopes of a Final Chip Deal

Toshiba Corp. surged the most in five months after David Einhorn’s Greenlight Capital revealed a position in the struggling Japanese conglomerate, while expectations rose it will soon close a $20 billion deal to sell its memory business.

The stock soared as much as 22 percent and closed 19 percent higher at 275.8 yen in Tokyo on Tuesday. Before today, the shares had slumped 30 percent since June 12 amid mounting uncertainty that Toshiba can complete the sale and repair its balance sheet by the end of the fiscal year to avoid delisting.

David Einhorn

Photographer: Christopher Goodney/Bloomberg

A group led by the Japanese government-backed Innovation Network Corp. of Japan, Bain Capital and other investors have become preferred bidders for Toshiba’s semiconductor business, with South Korea’s SK Hynix Inc. providing financing. Western Digital Corp. -- a partner of Toshiba’s in memory chipmaking -- is seeking to block the deal, arguing it tramples on their rights as a joint-venture partner. But a U.S. judge on Friday declined to rule on Western Digital’s request for an injunction on the deal.  

“In the past month, it seems like Western Digital has been gaining the upper hand and Toshiba may not be able to complete the chip unit sale by the end of the fiscal year,” said Kazunori Ito, an analyst at Morningstar Investment Services. “The share move today is a rebound from that. It seems like court’s decision may not be all that severe.”

Toshiba and Western Digital agreed to hold off closing the deal until a hearing by the Superior Court of California on July 28. The two companies were in court in the U.S. on Friday for a hearing on Western Digital’s request for a preliminary injunction to block the sale. Toshiba said it will proceed with negotiations and contract signing in the meantime.

On Tuesday, Japan’s Jiji reported that Hynix had agreed to drop demands for a voting stake, which would remove another obstacle to a final agreement. The group aims to finalize the deal next week, INCJ Chairman Toshiyuki Shiga told reporters in Tokyo on Friday.

“There is still some uncertainty remaining, but we are beginning to see the shape of things,” said Hideki Yasuda, an analyst at Ace Research Institute. “But the news of Einhorn’s investment probably had more impact on today’s shares.”

Einhorn’s hedge fund said in a note to clients it’s wagering Toshiba shares will rise once it exits money-losing contracts tied to its Westinghouse nuclear business, which filed for bankruptcy protection in March. Greenlight also believes Toshiba can resolve the legal dispute surrounding its memory business and that the Japanese company’s shares were worth close to 400 yen.

“We believe investors will refocus on the significant margin and valuation upside at Toshiba once it has resolved uncertainties,” Greenlight wrote in the letter, a copy of which was seen by Bloomberg News.

— With assistance by Nao Sano

    Before it's here, it's on the Bloomberg Terminal.