Toshiba Chip worth $40 Billion, according to Activist Group

Toshiba Corp’s chip unit could be worth as much as $40 billion, which twice as much as the sale price agreed upon on a consortium led by Bain Capital, according to an activist investment fund.

Hong Kong-based Argyle Street Management is trying to convince Toshiba either to negotiate for a higher price or list the unit in a move that further solidifies its opposition to the Bain-led deal. The fund was concerned that the Japanese conglomerate sold off the unit too cheaply in the wake of a financial crisis last year.

The fund has around $1.3 billion under management. It says other activist investors are in its favor, though it did not indicate how much support it has already garnered. Argyle also did not say the amount of its stake in Toshiba.

Toshiba Memory is the world’s second largest producer of NAND chips. It is set to be sold for 2 trillion yen, or $18.6 billion. Argyle claims that it is worth 3.3 trillion yen to 4.4 trillion yen. It cited a valuation analysis conducted by a third-party Japanese firm.

“The suggested range is in line with views of most analysts,” said Hideki Yasuda at Ace Research Institute. The institute values the unit at nearly 4 trillion yen, which they insist is a reason for Toshiba to not sell at the current agreed price.

Since the two parties, Toshiba and Bain, are still awaiting regulatory approval from China, the sale was not concluded by the agreed March 31 deadline. This means that Toshiba still has some time to pull out of the sale without penalties. Industry participants and bankers are keeping close tabs on how far Argyle’s campaign can reach.

This week, Chief Executive Nobuaki Kurumatani said that the company does not intend to cancel the sale except when there are “major material changes” in the situation.

The Japanese chipmaker indicated that it believes the majority of shareholders still have their eyes on the sale, according to a person with direct knowledge of the matter.

The consortium led by Bain last year resulted from a long struggle for the unit, which Toshiba wanted to sell following billions of dollars of cost overruns at its Westinghouse nuclear unit.

Under the deal, Toshiba plans to buy back 40 percent of the stake in the business. This means that the Japanese conglomerate will not entirely lose the business.

The consortium was held in order for Toshiba to rescue itself from insolvency and a delisting.  However, the company no longer needs the funds as much as it did before. This is because it has already raised $5.4 billion from a share issue to investors in the latter part of last year.

In addition, a growing demand for semiconductors has also swelled the annual chip-related earnings for Toshiba when compared with its prior peak, according to Ace Research Institute.

Even if there are looming concerns that the current demand for chip will weaken, the long-term view for 3D NAND chips is still rosy, Yasuda of the Institute said. 3D NAND chips have a stacked cell structure, which Yasuda claims gives the chips far more storage capacity.

“Demand for three dimensional NAND chips is likely to stay strong in years to come as these chips will be increasingly used in data servers, cars, and game consoles,” said Yasuda.

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