Toshiba Reaches a Final Deal

Toshiba Corporation announced on Thursday that it reached a deal for selling its microchip business with corporative coalition of Japan, United States and South Korea, which was led by Bain Capital. After the sales of the business with price of ¥2 trillion, Toshiba and Hoya Corporation will keep the majority of voting right. The Japanese conglomerate, that suffered from ill handling of nuclear power generation business, is going to step forward to rebuilding its business.

The union of three countries is going to build an acquisition purpose company. Toshiba is going to contribute ¥350 billion to obtain the equity of the company, while Hoya offers ¥27 billion. The rest of equity will be obtained by Bain with spending of ¥212 billion. SK Hynix in South Korea offers ¥395 billion of rending with condition of limiting the share of the voting right to 15% or less. Hynix cannot access secret information of Toshiba Memory.

Apple, Dell, Seagate Technology and Kingston Technology, each of which has business relationship with Toshiba, will offer ¥415 billion for obtaining preferred stock without voting right. Main banks, including Sumitomo Mitsui, will rend ¥600 billion for the purchase. Toshiba is going to have a general shareholders meeting to get approvals for the plan later this month.

Toshiba’s business partner, Western Digital, filed a lawsuit against Toshiba to seek suspension of the sales of microchip business to International Court of Arbitration. Because it takes about a year for the court to discuss the case, it is likely that WD is going to demand tentative stop of the sales contract. If the court issues the decision to stop the effect of the deal by March 2018, Toshiba will be pushed to the edge of bankruptcy. If Toshiba fails in getting rid of status of insolvency by next March, the company will be dropped from the list of Tokyo Stock Exchange.

Japan has once been a giant in semiconductor business. Fujitsu and Panasonic have retreated from the business, while NEC, Hitachi and Mitsubishi were integrated into Elpida Memory that would be bankrupted in 2012. Toshiba has been an only major semiconductor business survived the hard international competition. Semiconductor business in Japan amounts to ¥10 trillion. If the technology of Toshiba’s flash memory factory in Yokkaichi, Mie, which has the biggest capacity in the world, is handed to another company, whole semiconductor business in Japan will be affected.

But it is likely that the future of semiconductor business will be led by China and South Korea. It is unclear whether Toshiba Memory can survive the competition, even if it can manage to get through current crisis.