TOKYO • Toshiba is looking to sell a minority stake in its core semiconductor business to Western Digital, a source said, in a bid to dull the blow from a looming multibillion-dollar write-down on a United States nuclear acquisition.
The laptops-to-engineering conglomerate, still recovering from a US$1.3 billion (S$1.85 billion) accounting scandal, shocked investors last month by announcing cost overruns at a US nuclear business it bought in 2015, which could now mean a charge against profit topping US$4 billion.
Toshiba does not have many options to offset the impact of this write-down that could wipe out its shareholders' equity. Given the fact the firm is on the Tokyo Stock Exchange's watchlist, it is impossible for it to raise funds from financial markets. The spin-off of its profitable but capital-intensive chip business and a stake sale are perhaps the only ways out.
"It is true that we are discussing a spin-off of our memory chip business, but nothing has been decided," Toshiba said in a statement, after the Nikkei business daily reported the firm was considering such a move yesterday. The chip unit generates most of the Japanese firm's operating profit.
While Toshiba did not confirm whether it was looking to sell around 20 per cent in the unit to Western Digital for up to US$2.7 billion as Nikkei reported, a source briefed on the matter said the two companies were in talks for a "minority stake" sale.
Bayview Asset Management portfolio manager and executive officer Yasuo Sakuma said: "Toshiba doesn't have any other options. I have an impression that this deal is their last-ditch measure."
Toshiba, which has been in talks with the US company for a possible investment in the chip unit, could also ask funds to invest in the business that could be valued about 1 trillion yen (S$12.5 billion), sources said.
"There are several candidates for investment," one of the sources added, without giving details.
The Japanese company is aiming to complete the spin-off by the end of March, the sources said, adding that Toshiba could eventually list the unit but that it would retain a majority stake because it is currently almost the only growth driver.
According to researcher IHS, Toshiba had a 20.4 per cent share in the global NAND flash memory market in April to June last year in terms of revenue, ranking second after Samsung Electronics which has a 34.9 per cent share.
The combination of Toshiba and California-based data storage company Western Digital would create a new industry leader.