Toshiba chip sale on hold as judge delays Western Digital ruling

The future of Toshiba’s memory chip business has been thrown deeper into confusion after a judge delayed a ruling on Western Digital’s attempt to block an $18bn sale.

Harold Kahn, presiding over the case at the Superior Court of San Francisco, proposed an order requiring Toshiba to give Western Digital two weeks’ notice before completing a sale of its prized chip division. He ordered another hearing in late July.

The delay piles pressure on the Japanese industrial giant, which is desperate to close a sale of its semiconductor business to fill a ¥600bn ($5.3bn) hole in its shareholder equity and avoid a forced delisting from the Tokyo Stock Exchange.

It raises the odds that Western Digital — which as Toshiba’s joint venture partner in the memory chip business says it has the right to approve any sale — can elbow its way back into negotiations to buy the division.

Toshiba resumed exploratory talks with other bidders this week, including Western Digital, as its favoured consortium struggles to close a deal. That consortium is led by Bain Capital of the US and the government-backed Innovation Network Corporation of Japan. It also includes controversial finance from Toshiba rival SK Hynix of Korea.

$5.3bn

hole in Toshiba’s shareholder equity

Western Digital, which was seeking an injunction to halt a sale before arbitration scheduled for this autumn, hailed the judge’s ruling as a victory.

“Our entire goal was to preserve and protect our rights through the binding arbitration process, and that’s precisely what the court has done today,” said Steve Milligan, chief executive of Western Digital.

Toshiba described the judge’s proposed ruling as a “finessed” alternative to an injunction. “In accordance with the judge’s proposed order, Toshiba agreed there would be no closing of any sale of its memory business before a hearing set for July 28,” the company said.

Toshiba argues that the San Francisco court has no jurisdiction over the sale of a Japanese corporation to another Japanese corporation in Japan. Until the judge settles the question of jurisdiction, or Toshiba agrees to abide by his order, the case will remain unresolved.

The memory division is Toshiba’s most valuable business. It is one of the world’s biggest makers of so-called Nand flash chips, which are used for data storage in most consumer electronics, including smartphones. Flash memory is beginning to displace hard disc drives in computers as well.

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