Toshiba Fails to Meet Sales of Memory Chip Unit

Toshiba Corp., a Japanese multinational conglomerate, on Thursday failed to meet the deadline set by its creditors to seal a deal for the sale of its profitable chip business by the end of August, raising doubts about whether it can pad a balance sheet hole to prevent being delisted and keep the unit competitive.

Toshiba said it has not been able to pick a winner, and said,”while Toshiba exercised its best efforts to reach a mutually satisfactory definitive agreement with one of the consortia seeking to purchase TMC, the negotiations with each consortium have not reached a point which will allow Toshiba’s Board of Directors to make a decision.”

The embattled company also said it is still in talks with three consortia regarding its memory chip. A consortium led by Western Digital, as well as groups led by Bain Capital, and by Taiwan’s Hon Hai Precision Industry Co., or Foxconn Technology Group.

Toshiba had been aiming to make a final decision at a board meeting held Thursday to settle a deal with the Western Digital group as it reached a broad consensus on the chip unit sale with the U.S. company, which both has invested in Toshiba’s Yokkaichi flash memory plant in central Japan.

The sale of the world’s second largest maker of NAND chips, worth $17 billion to $18 billion, has become a combative battle marked by a slew of revised bids, changing alliances among bidding groups and the threat of legal action form joint venture partner Western Digital.

A contract signing is likely to take place in September after missing the Thursday deadline set by Toshiba’s main creditor banks.

“They need to come to an agreement in September to get all of the anti-trust approvals in place, but it’s really beginning to feel like they don’t really want to sell,” said Hideki Yasuda, an analyst at Ace Research Institute.

“They could still keep the business. If Toshiba is not so hung up on staying public, they can get delisted and still survive,” he added.

Without the money to pay billions in liabilities at its bankrupt nuclear unit in Westinghouse Electric Co., Toshiba would likely need to book negative net worth for a second year running, which could end to being delisted in the Tokyo Stock Market.

Complicating matters, the Japan-U.S.-South Korean consortium, which Toshiba had initially chosen as its preferred bidder, mad a last minute bid for the chip unit offering around 2 trillion yen, or $18.1 billion, bringing in Apple Inc. to help boost its bid, according to the person with knowledge of the matter.

This bid undermines the 1.9 trillion yen offered by Western Digital-led consortium, which also includes a U.S. private equity firm KKR & Co LP. However, banking sources have recently said that Western Digital was working to have its proposal up to 2 trillion yen.

Hon Hai Precision Industry, the world’s largest contract electronics maker, on the  other hand, is seen as an unlikely winner in the race due to its deep ties with China and Japanese government’s desire to keep key semiconductor technology owned by Japanese-U.S. capital.

Other sources familiar with Toshiba’s discernment have also said the Japanese corporation may consider tapping financial investors to strengthen capital so that it could thwart delisting in the event that it decides not to sell the chip unit. 

Meanwhile, by 3:00 PM GMT+9, Toshiba Corp. traded 0.65%, or 2, to 306 JPY. It opened in 310 JPY, with a session high of 316 JPY, and a session low of 304 JPY. Its market capitalization was 1.08 trillion, with a P/E ratio of 3.58.