By Kentaro Hamada and Taro Fuse
TOKYO (Reuters) – A consortium led by Bain Capital has made a revised last-ditch offer for Toshiba Corp’s chip unit worth about $18 billion, bringing in Apple Inc to help bolster its bid, sources with direct knowledge of the matter said.
The new offer comes as separate sources say the embattled Japanese conglomerate and Western Digital Corp are struggling to strike a deal ahead of their self-imposed deadline of Thursday.
Toshiba has been scrambling to sell its flash memory unit – the world’s No. 2 producer of NAND chips – to cover billions in losses at its bankrupt U.S. nuclear business Westinghouse.
Toshiba’s relationship with Western Digital, its joint venture partner for its chip business, has been rocky throughout the auction process – to the point that other bidders were favored first while the U.S. firm has also initiated legal action that threatens to derail any deal that does not have its consent.
The revised offer is worth some 2 trillion yen ($18.2 billion). Bain and South Korean chipmaker SK Hynix Inc will be responsible for 1.1 trillion yen, while Apple will provide up to 400 billion yen and Japanese banks will give around 600 billion yen in support, one of the sources said.
The proposal also calls for Toshiba to be part of the deal, investing 200 billion yen, the source said.
By taking part in the bidding, Apple could help ensure a competitive supply chain and lessen its dependence on the chip division of Samsung, a key rival in the smart phone business.
Apple buys memory chips from multiple vendors, including market leader Samsung. Combined, Toshiba and Western Digital could be almost as large as Samsung’s memory unit, which could give a combined company more negotiating leverage against Apple.
“Apple is so big they need to multi-source,” said Frank Gillett, an analyst with market research firm Forrester. He said Apple needed to keep as many chip suppliers as possible in the market to keep prices competitive.
A Bain-led group had previously been chosen by Toshiba as its preferred bidder. But those talks lapsed as Japanese government investors who had been part of that consortium told Toshiba they were reluctant to close a deal in the face of the legal risks posed by Western Digital’s demands.
Bain’s new offer is designed to get around that problem as it will invite the state-backed investors – the Innovation Network of Japan (INCJ) and the Development Bank of Japan (DBJ) – to invest in the business only after any arbitration with Western Digital is settled, the source said.
The bid trumps the 1.9 trillion yen offered by the Western Digital-led consortium, which also includes U.S. private equity firm KKR & Co LP. Banking sources have previously said, however, that Western Digital was working to get its proposal up to 2 trillion yen.
Bain’s revised bid was first reported by Japanese broadcaster NHK which said it would be structured so that Bain and Toshiba would each hold 46 percent of the unit.
The sources declined to be identified as talks concerning the auction were private.
Toshiba, Bain, Western Digital, INCJ and Apple declined to comment. Representatives for DBJ and KKR were not immediately available for comment.
People familiar with the matter have said Toshiba and Western Digital are bickering over the size of any potential stake to be held by the U.S. firm in the chip unit. For now, Western Digital plans to invest only through convertible bonds.
Toshiba wants to reach a deal soon and it is not clear if it will give serious consideration to Bain’s new proposal.
Failure to clinch a deal in the next few weeks could mean that it may not clear all necessary regulatory approvals by the end of the financial year in March. That would likely lead to Toshiba reporting negative net worth for two years in a row, increasing its chances of being delisted.
(Reporting by Kentaro Hamada and Taro Fuse; Additional reporting by Makiko Yamazaki, Naomi Tajitsu and Junko Fujita in Tokyo, Joyce Lee in Seoul and Stephen Nellis in San Francisco; Editing by Edwina Gibbs and Andrew Hay)