Toshiba warns Western Digital over unit sale

Toshiba has told partner Western Digital to stop interfering in plans to sell its memory chip business, warning it may take legal action to prevent the U.S. company from derailing the sale.

Toshiba sent two letters to Western Digital on May 3, which were obtained by Bloomberg. One from Toshiba’s lawyers asserts the Japanese company’s right to sell its part of the semiconductor joint venture, despite objections from the U.S. hard-disk maker. The second, sent by Toshiba to Western Digital’s chief legal officer, says the U.S. company failed to ratify a proposal to formalize their relationship after a merger, and that Toshiba would bar Western Digital employees from its facilities and networks unless it complies by May 15.

Western Digital became Toshiba’s manufacturing partner in the flash-memory business when it acquired SanDisk Corp. for $15.8 billion last year. That unit may now pass into the hands of a new owner after Toshiba decided to put it up for sale to shore up its balance sheet following multibillion-dollar losses in its nuclear business. Toshiba has narrowed the list of potential buyers to a group that includes Western Digital rivals, including Taiwan’s Hon Hai Precision Industry, Korea’s SK Hynix and chipmaker Broadcom.

“If Western Digital continues to interfere with Toshiba’s rights to sell its affiliate - rights embodied in the joint venture agreements that Western Digital itself relied on when it bought SanDisk - Toshiba will have no choice but to pursue all available remedies,” the Tokyo-based company said.

The letters effectively reject an assertion by Western Digital that Toshiba should negotiate with the San Jose, California-based company first, and that Toshiba needs Western Digital’s consent to complete the sale. Western Digital Chief Executive Officer Steve Milligan told Toshiba’s board members in a letter on April 9 that the potential bidders for the chips unit were unsuitable and the reported prices offered were above the fair and supportable value of the business. The CEO’s letter cautioned in particular against accepting a bid from Broadcom Ltd., which has led the wave of consolidation in the chip industry over the past two years.

In the letter from law firm Morrison & Foerster, Toshiba said it clearly has the right to sell under the change of control provisions in the joint venture contract. In fact, Western Digital took advantage of this very provision when it bought SanDisk’s share of the venture, according to the letter.

Western Digital’s spokesman Jim Pascoe didn’t immediately respond to messages seeking comment.

Toshiba is aiming to complete the sale of the chips unit by March 2018 to raise much-needed cash. The potential offers, which are non-binding at this point, have come in at about 2 trillion yen ($17.6 billion), with Hon Hai indicating its willingness to pay as much as 3 trillion yen, Bloomberg has reported. While the large size of the deal has made it necessary for bidders to seek partners to ease the financial burden, participation by Japanese companies may be key to regulatory approval.

Bloomberg