Toshiba, Western Digital settle differences

Western Digital CEO Steve Milligan.																																Close												Western Digital CEO Steve Milligan

Toshiba and Western Digital have finally reached an agreement on the long-running dispute regarding Toshiba's sale of its semiconductor division to Western Digital's rivals, agreeing to terms that will see the two companies share fabrication facility investments.

The agreement to settle all litigation and arbitration represents a major step forward for the chip unit sale, a key part of the struggling Japanese electronics and machinery group's efforts to reinforce its financial base damaged by huge losses from the United States nuclear plant business.

Toshiba Corp. and its joint venture partner Western Digital have made peace over the embattled Japanese electronics giant's plan to sell its flash memory unit to raise cash to stay afloat. he agreement allows Western Digital to participate in future investments in their joint venture, clearing the way for a consortium led by Bain Capital to buy Toshiba Memory Corp., the companies said yesterday.

The settlement calls for Western Digital to drop arbitration claims seeking to stop the sale to the Bain consortium in exchange for Toshiba allowing the US partner to invest in a new production line for advanced memory chips.

With data storage key to most next-generation technologies, demand for NAND chips has boomed, and Western Digital, Toshiba´s chip business partner and jilted suitor in the auction, had threatened to block any deal without its consent.

So what happened? Toshiba wanted to sell its chip business to a consortium led by Bain Capital for roughly $18 billion. Under that deal, Toshiba plans to cede a majority stake in the chip subsidiary to a group of investors led by the investment firm Bain Capital.

Since Toshiba announced that it would be selling off its NAND flash factory business, it has run into a number of legal issues with Western Digital. To maintain solvency, Toshiba was forced to offer up a share of its NAND flash memory business, by far the most lucrative portion of Toshiba's conglomerate.

The partners have been locked in a legal battle since early this year after Toshiba said it would sell the chip business to pay for enormous losses in its USA nuclear business.

Toshiba had stepped up pressure on Western Digital in recent weeks. The deal is structured so that Toshiba and Hoya Corp. will hold a majority of the voting stock, a solution that keeps control of sensitive technology in Japanese hands.

The prospect that Western Digital's legal challenges might derail the sale to Bain was daunting for Toshiba, but Toshiba possessed leverage of its own.

Toshiba raised 600 billion yen, or around $5.3 billion, in short-term funding to sustain it in case the sale to Bain was delayed.

IBD'S TAKE:Morgan Stanley cut its rating on Western Digital last month to equal weight from overweight, based on an expectations that prices of Nand flash-memory chips are peaking and could fall as much as 15%, starting in the first quarter. The transaction is still subject to regulatory approvals.

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