Governmental Project Salvaging Toshiba

On the way to rebuild its declined business, Toshiba Corporation decided on Wednesday to have negotiation for selling out its semiconductor business primarily with a unit of corporations in Japan, United States or South Korea. To protect cutting-edge technology or human resource from draining into strangers, the negotiation became national project of Japan, making Ministry of Economy, Trade and Industry involved in. The project still has a risk of lawsuit filed by a U.S. business partner.

Caused by huge financial loss of Westinghouse, a U.S. giant on nuclear business bought by Toshiba, Toshiba held a great amount of debt exceeding its asset this March. If it fails in avoiding excessive debt for two consecutive accounting periods, Toshiba will be removed from the list of Tokyo Stock Market. Selling its semiconductor business out is indispensable for improving its financial balance.

Toshiba chose a group of semiconductor businesses, banks and investment funds. They include Innovation Network Corporation of Japan, a joint fund of private and government, Development Bank of Japan, Bain Capital of U.S. and SK Hynix, a major semiconductor corporation in South Korea. They offered ¥2 trillion for buying semiconductor business of Toshiba. To clear regulation of anti-trust law of related governments, SK Hynix will not be one of the investors, but offering loans.

The government of Japan recommended the bid of the group, because SK Hynix would not have power in the management. While the government was reluctant to be involved in private businesses, it changed the policy a few months ago when it realized possibility of losing highly important technology and engineers to other countries. A staff of Japanese government revealed that Prime Minister’s Official Residence ordered not to hand over those technologies to China. “We welcome this bid, which fulfills some conditions of avoiding a drain of technology or maintenance of employment,” told Minister of Economy, Trade and Industry, Hiroshige Seko.

Western Digital has firmly been opposing the sale of the semiconductor business. It filed a lawsuit with the Superior Court in California, seeking an injunction until its arbitration case would be heard. If the court accepts the argument of Western Digital in its hearing next month, the process of selling will be halted. INCJ and DBJ will possibly retreat from the bid, if the lawsuit is prolonged.

METI has been eager to exclude foreign corporations, including Hon Hai in Taiwan from the bid. The involvement of the Ministry caused weak governance of a group with fund business that is not familiar with management. It is still unclear whether those funds keep on investing semiconductor business, which requires great amount of further investment.