Toshiba picks Bain-Japan group as preferred chip unit buyers

The logo of Toshiba Corp is seen behind a traffic signal at its headquarters in Tokyo.
The logo of Toshiba Corp is seen behind a traffic signal at its headquarters in Tokyo.PHOTO: REUTERS

TOKYO (BLOOMBERG) - Toshiba picked a group led by Bain Capital and Japanese investors as the preferred bidders for its memory chip business, bringing much needed cash into the Japanese company to make up for losses in its nuclear operations.

Toshiba said in a statement Wednesday that it's aiming to reach a final agreement with the group by its shareholders' meeting on June 28, and to close the transaction by March.

The consortium has indicated that it is willing to pay 2.1 trillion yen (S$26.2 billion) for the semiconductor unit, people with knowledge of the matter have said. Backing for the bid by state-supported Innovation Network Corp. of Japan and Development Bank of Japan are considered essential for winning government approval for an acquisition.

"Toshiba has determined that the consortium has presented the best proposal, not only in terms of valuation, but also in respect to certainty of closing, retention of employees and maintenance of sensitive technology in Japan," the company said in the statement.

Although the chip unit was Toshiba's crown jewel, the company will be left with more than 600 different businesses, including elevators, a general hospital and software services. Toshiba's Westinghouse Electric nuclear division has filed for bankruptcy after losses piled up from project delays, forcing Toshiba to predict an annual loss of 1.01 trillion yen.

All of this is a humiliating predicament for one of Japan's oldest businesses, which made the country's first light bulb and grew into a behemoth that made everything from washing machines and medical equipment to laptops and nuclear plants.

While Bain, INCJ and DBJ will contribute cash and equity, South Korean chipmaker SK Hynix Inc. will join the group by providing only loans to avoid antitrust hurdles, another person familiar with the matter has said. Toshiba didn't mention SK Hynix in Wednesday's statement.

Toshiba shares fell 1.3 per cent as of midday in Tokyo Wednesday. The stock is up about 15 per cent this year.

The other leading contender was US chipmaker Broadcom, which made an offer of about 2.2 trillion yen, according to people with knowledge of the matter.

The closing of the deal may be complicated by objections from Western Digital Corp., which jointly owns certain chip assets with Toshiba. The US company has sought to prevent the business falling into the hands of rivals and opposed Broadcom in particular.

"If it comes through as expected, shares will probably be bought because some of the uncertainty will dissipate," said Naoki Fujiwara, chief fund manager of Shinkin Asset Management Co. in Tokyo. "But we still have the Western Digital lawsuit, so it's not as if this will make everything alright."

For potential chipmaker buyers, control of Toshiba's output of memory chips is crucial in making any investment worthwhile. And investment firms need to guarantee they have enough capital available to continue to upgrade Toshiba's plants and production in an industry where billions of dollars a year are needed to stay competitive.