Toshiba To Proceed With Sale Of Memory Business To Consortium

The latest and possibly final round of bidding for Toshiba's memory business concluded today with Toshiba's board selecting a consortium led by private equity firm Bain Capital as the preferred bidder, over competing bids from Western Digital and Foxconn.

Toshiba has spent most of 2017 trying to sell off their thriving flash memory business in order to offset devastating losses suffered by their Westinghouse nuclear power division. Those financial problems came to a head at the end of 2016 with Toshiba admitting that the losses could amount to several billion dollars, resulting in their stock price falling by more than 40% over a four day span and their bond ratings being downgraded by Moody's and S&P. As the magnitude of their problems became clearer, Toshiba first planned to spin off their memory business and sell a 20% stake, then revised that to selling a majority stake, and eventually settled on selling it outright. As the second largest manufacturer of NAND flash memory, Toshiba's memory business is valued at around $18 billion.

In June, Toshiba selected as preferred buyer a consortium including Bain Capital, Innovation Network Corporation of Japan, Development Bank of Japan and competing memory manufacturer SK Hynix. Toshiba's attempts to sell off the memory business have been complicated by their long-running joint ventures with SanDisk, owned by Western Digital since May 2016. Western Digital and SanDisk have objected to Toshiba's attempts to unilaterally spin off and sell Toshiba's share of the partnerships, with the conflict escalating to arbitration proceedings and lawsuits in both Japan and California. Western Digital has sought all along to acquire the assets Toshiba is putting up for sale, but as the bidding process grew to encompass the entirety of Toshiba Memory and the price climbed, Western Digital had to partner with other investors to continue offering a competitive bid. The uncertainty caused by Western Digital's legal action has been a concern for other bidders, delaying Toshiba's efforts to finalize a deal.

In August, Toshiba re-opened negotiations with Western Digital and their partners, as well as with Foxconn. In the meantime, the Bain-led consortium's offer grew to include investment from Apple, Dell, Kingston and Seagate. Last week, Toshiba announced they had signed a memorandum of understanding with Bain Capital, intending to finalize a deal by the end of September, but not ending negotiations with competing bidders. As recently as September 19, leaks suggested that Toshiba was leaning back toward selling to Western Digital. At a Toshiba board meeting earlier today, Toshiba reaffirmed their commitment to complete a deal with the Bain Capital consortium. The exact sale price has not been made public, nor has the breakdown of the contributions of the individual consortium member companies.

Bloomberg is reporting that Toshiba is prepared to complete this deal even before resolving the legal disputes with Western Digital, by excluding the joint venture assets at issue from the sale and amending the purchase price to compensate. The joint ventures account for less than 5% of the Toshiba memory business, according to Bloomberg's anonymous source.

Toshiba has not yet issued an official statement on today's decision. Western Digital issued a statement expressing disappointment with Toshiba's decision and declaring their intention to continue their legal efforts.