Toshiba Agrees to Sell Memory Chip Unit to Bain Group: SourceBy and
Toshiba Corp.’s board has agreed to sell its chip unit to a group led by Bain Capital, with the assurance that the buyout firm will complete a deal regardless of legal challenges from Western Digital Corp., according to people familiar with the matter.
The Bain consortium includes financial support from Apple Inc., Dell Inc. and several other companies, said the people, asking not to be identified because the matter is private. Toshiba also plans to invest about 350 billion yen ($3.1 billion) alongside the U.S. buyout firm, they said.
The Bain-led group was identified as a preferred bidder almost three months ago, but the process has been delayed by lawsuits, government opposition and corporate indecision. Toshiba’s board chose Bain over a group led by KKR & Co. and two state-backed funds, Innovation Network Corp. of Japan and Development Bank of Japan. To complete the sale, Toshiba may have to overcome continued resistance from joint venture partner Western Digital.
Toshiba is selling off its chips business to pay for losses in its U.S. nuclear business and needs to raise the money by March to avoid seeing its shares delisted from the Tokyo Stock Exchange. The auction has been complicated by legal action from Western Digital, which has argued it should have veto rights in any sale because of its partnership with Toshiba in the chips business. The Japanese company disputes that and sued Western Digital for more than $1 billion for interfering in the auction.
Bain has agreed to close the deal even if the legal dispute with Western Digital is unresolved, said one of the people. In that case, three joint ventures between Toshiba and Western Digital would not be transferred to Bain at closing and the purchase price would be adjusted, the person said. The joint ventures are worth less than 5 percent of the chips unit, the person said.
The Japanese company’s board agreed to the Bain proposal at a meeting Wednesday. Under the agreement, Bain, Toshiba, SK Hynix Inc. and Japan’s Hoya Corp. will pay about 960 billion yen for common and convertible stock, while Apple, Dell, Kingston Technology Co. and Seagate Technology Plc will spend about 440 billion yen for convertible and non-convertible preferred stock, the person said. The special purpose entity making the acquisition will be called Pangea and receive about 600 billion yen in loans, the person said. Reuters reported earlier that Toshiba’s board had chosen Bain.
The auction has gone through dizzying twists and turns. Last week, Toshiba signed a memorandum of understanding with Bain, with the goal of reaching a final deal before the end of the month. But the MOU didn’t preclude Toshiba from continuing to negotiate with other bidders.
This week, KKR and INCJ worked on a revised bid, with the Japan fund taking a more prominent role in the consortium and planning an initial investment of about 550 billion yen, up from the previous 300 billion yen, people familiar with the matter said. Under the revised proposal, Toshiba could buy back equity from INCJ and DBJ later, the people said.
Bain then revised its offer too. The U.S. buyout firm sought more financial support from Apple, asking for about $7 billion in capital, up from a previous agreement for about $3 billion, said a person familiar with the matter. It’s not clear exactly how much capital Apple will ultimately contribute to the offer.