Western Digital Says Toshiba Breaching Contract, Wants Exclusive Chip Talks

Pocket News
April 14, 2017
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TOKYO, Apr 13 – Western Digital Corp has warned Toshiba Corp that the Japanese firm is violating a joint venture contract in plans to sell to its chip unit and urged that it be given exclusive negotiating rights. In a strongly worded letter dated April 9, Western Digital, which operates a semiconductor plant with Toshiba in Japan, said the transfer of the venture’s rights to a new chip unit which was split off recently without the US firm’s consent was a “very serious breach”.

The letter, seen by Reuters, also said the US firm would not sit idly by while Toshiba “runs roughshod” over its rights, although it did not threaten legal action. The move, seen as a play by the California-based company to strengthen its hand in talks, is set to complicate the auction of the prized unit – a sale essential to Toshiba’s plans to cover writedowns at US nuclear unit Westinghouse that have plunged it into crisis.

Sources at Toshiba’s banks said they had been told by the Japanese conglomerate that there were no legal problems with its decision to split off the chip business. The auction has drawn strong interest, and Toshiba has narrowed down the field to just four suitors to move on to a second round of bidding, people briefed on matter said.

US chipmaker Broadcom Ltd has put in the highest first-round offer of ¥2.5 trillion (RM10 billion) while Taiwan’s Foxconn, the world’s largest electronics contract manufacturer, offered ¥2 trillion, one of the people said. Western Digital’s bid was far below both those offers, the person added.

Broadcom has partnered US private equity firm Silver Lake Partners LP, the sources added. The size of the offer made by South Korean chipmaker SK Hynix, the fourth suitor, was not immediately known. The sources declined to be identified as they were not authorised to speak on the matter publicly.

Toshiba declined to comment on the content of the contract with Western Digital and the auction process. Representatives for Broadcom, Silver Lake, Western Digital, Foxconn could not be reached immediately for comment outside of regular business hours.

In the letter sent by CEO Stephen Milligan and addressed to Toshiba’s board of directors, Western Digital said rumoured bids of ¥2 trillion to ¥3 trillion were well above the fair value of the business and cited analysts’ estimates of around ¥1.5 trillion. Western Digital also said other rumoured bidders are highly problematic for both Japan and the joint venture and specifically named Broadcom, saying that it had grave concerns based on recent commercial dealings with the firm. — Reuters

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