Toshiba, Western Digital end chip dispute; joint investment to resume

(Reuters) – Toshiba Corp and its chip business partner Western Digital Corp agreed to settle a long-running dispute over the embattled Japanese conglomerate’s plans to sell its chip unit, the companies said in a statement, removing a key obstacle to the deal.

FILE PHOTO -The logo of Toshiba Corp is seen behind cherry blossoms at the company’s headquarters in Tokyo, Japan April 11, 2017. REUTERS/Toru Hanai

Toshiba agreed in late September to sell Toshiba Memory, the world’s second-biggest producer of NAND chips, to a consortium led by Bain Capital LP for $18 billion to cover billions of dollars in liabilities arising from Toshiba’s now bankrupt U.S. nuclear power unit Westinghouse.

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.

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 U.S. partner to invest in a new production line for advanced memory chips.

As part of the settlement, Toshiba and Western Digital will extend existing agreements for their chip joint ventures in Yokkaichi, central Japan, until 2027 or later.

FILE PHOTO – A Western Digital office building is shown in Irvine, California, U.S., January 24, 2017. REUTERS/Mike Blake/File Photo

Western Digital also plans to invest in a new chip plant that Toshiba will start building next year in northern Japan.

Toshiba gained the upper hand in negotiations with Western Digital after securing a $5.4 billion cash injection from overseas funds that will allow it to bolster its balance sheet before the end of March and avoid a delisting.

The chip unit sale may, however, face more complications.

Argyle Street Management Ltd, a Hong Kong-based hedge fund with $1.2 billion under management, sent a letter to Toshiba’s board on Monday urging the company to scrap the deal, which the fund claims significantly undervalues the chip unit.

Argyle is inviting the 30-plus overseas investors who participated in Toshiba’s new share issue to team up in opposition to the deal although it remains to be seen just how much traction it will gain.

The sale also needs to clear regulatory reviews, but they are not expected to scuttle the deal.

Reporting by Makiko Yamazaki in Tokyo and Rushil Dutta in Bengaluru; Editing by Cynthia Osterman