Toshiba Finally Decides on Chip Unit Buyer

Struggling electronics firm Toshiba will sell its chip unit to a consortium led by US equity firm Bain Capital.

Two Japanese state-backed entities -- the Innovation Network Corporation of Japan and the Development Bank of Japan -- are also thinking about acquiring a stake in the future.

Toshiba officials announced on Wednesday that they're soon going to sign the deal, worth about 18 billion dollars. They say Bain Capital, Toshiba and other companies from Japan and overseas will come up with the capital.

Sources say South Korean chipmaker SK Hynix, which was initially part of the Bain Capital-led consortium, will not be an investor. It will instead provide a different form of financial support. This arrangement will make it easier for the contract to pass antitrust screenings in various countries.

A Difficult Decision

The electronics giant decided back in January to sell its mainstay semiconductor unit.

The firm needs the money to cover losses from its US nuclear business. Adding to the sense of urgency is the tight deadline the executives face. If they can't get the business back in the black by March 2018, Toshiba will likely be delisted from the Tokyo Stock Exchange.

But the path to choosing a buyer has been filled with obstacles. One of the biggest stumbling blocks has been Toshiba's business partner Western Digital. The US company filed a lawsuit opposing any sale and demanding a stake in the deal. Following Toshiba's decision, it said in a statement it's disappointed the company would take this action despite the US company's "tireless efforts."

There were also approaches from other bidders, including various consortiums, and also Taiwan's Hon Hai Precision Industry, known as Foxconn.

But now, months of negotiations appear to be at an end. With the deadline looming, Toshiba has decided to act.

NHK World Senior Economic Correspondent Reiko Sakurai joins Newsline's Gene Otani in the studio.

Otani: This decision has been a long time coming. What was the hold-up?

Sakurai: This year has been a minefield for Toshiba. Its main dilemma has been whether it should choose a bid from its US partner Western Digital, thereby removing a legal challenge, or whether it should go with another bidder, and potentially make the situation with Western Digital worse.

In the end, the decision boiled down to 2 main considerations. One: will the sale deliver the money that Toshiba needs? And two: will the deal be likely to get the approval of antitrust authorities in different countries?

Japanese government officials don't want Toshiba's chip technology ending up in the hands of rivals overseas. They consider it a matter of national interest. Bain's proposal reflects that desire. Its consortium is offering 2 trillion yen, or around 18 billion dollars. That would help Toshiba cover its losses from its US nuclear business.

And the main players are Bain and a group of Japanese firms including Toshiba itself. South Korean chipmaker SK Hynix will join the group but -- importantly -- it won't acquire a stake. Toshiba and the government are hopeful the deal will get quick approval from anti-trust authorities.

Otani: What challenges lie ahead?

Sakurai: Experts say it usually takes at least 6 months to get antitrust authorities around the world to give the go-ahead on deals like this.

Toshiba needs to complete the sale by next March to avoid a forced delisting from the Tokyo Stock Exchange. So it's really racing against the clock. Toshiba also needs to resolve the legal battle with Western Digital, which fiercely opposes the sale. If Toshiba can't do that, it's possible the sale won't go ahead.

And the ultimate challenge will be whether the Japanese electronics giant can actually rebuild itself. The firm used to have nearly 200,000 workers around the globe. Even if the sale goes through, it will still have 140,000 people on its books. And Toshiba can no longer rely on its profit-making chip business. The company desperately needs a strong pillar to rebuild on.