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Toshiba sues Western Digital for $1bn for 'interfering' with chip unit sale

The soap opera that is Toshiba's chip unit sale continues, as it now appears the company will be suing Western Digital for $1 billion in damages.

The news comes after Western Digital issued a last minute bid on the chip division, preventing Toshiba from landing a deal with its preferred bidder, a conglomerate of Japanese government investors.

As a result, Toshiba was forced to push back its timeline and miss its self-imposed deadline for the sale. It is now claiming 120 billion yen (£0.83 billion) in damages against Western Digital, which it says is attempting to interfere with the process, according to a report by Reuters.

The Japanese company also said it had blocked Western Digital employees based near their Yokkaichi chip plant from accessing any information relating to the joint venture, potentially putting research and development on the processors on hold.

Toshiba is hoping to cover billions of dollars lost from the bankruptcy of its nuclear unit earlier this year, and is looking for 2 trillion yen ($18 billion) for its NAND processor unit.

Its chief executive, Satoshi Tsunakawa, said that the firm would now seek agreement on the deal with its preferred bidder by the end of the financial year next March. "It is taking time to smooth out differences in opinion among members of the consortium," he explained in an interview with Reuters.

However this is unlikely to be easy as Western Digital, which jointly runs Toshiba's semiconducting plants, maintains that the move is in breach of a joint venture contract and that consent was never obtained to put the unit up for sale. It has applied for an injunction to the deal in the US, which is to be heard on 14 July.

26/06/2017: Western Digital objects to SK Hynix taking part in Toshiba chip unit sale

Western Digital has told Toshiba that it won't allow rival chipmaker SK Hynix to participate in a bidding consortium for Toshiba's memory chip business.

Western Digital jointly runs Toshiba's main semiconductor plant and has sought a US court injunction to prevent any deal that it does not consent to, reports Reuters.

Toshiba wanted to sign a definitive agreement with its preferred bidder by Wednesday, which is the day of its annual shareholders' meeting. Its preferred bidder is a group led by the Japanese government and includes investment firm Bain Capital as well as rival South Korean chipmaker SK Hynix.

The Japanese government is looking to keep the firm under domestic control and has put forward a two trillion yen ($18 billion) offer. Bain is planning to invest 850 billion yen and South Korea's SK Hynix will apparently provide half the amount Bain puts up in the form of financing, according to Reuters sources.

Western Digital sent a letter on June 25 to Toshiba's board about SK Hynix's participation, saying that the rival's presence in the consortium increased the chances of a technology leakage to the rival chipmaker, declaring that the winning bid did not appear to be bigger than its own offer.

"I must make it clear that Western Digital will not consent to a transaction with the proposed consortium," said Western Digital CEO Stephen Milligan. "This potential course of action would make further litigation inevitable."

In April, Toshiba announced that it had an income loss of $4.9 billion and, sparking the sale of its memory chip business. Toshiba's joint venture partner, Western Digital, has joint-ownership of some of the chip units facilities and claimed that the sale might violate their contract.

The spat between the two companies escalated and Western Digital filed a suit with the Supreme Court of California, seeking an injunction, and it expects the court ruling on July 14.

On Friday, Toshiba CEO Satoshi Tsunakawa said he was open to talks with Western Digital but would not make the first move. He also claimed that SK Hynix would not hold any equity so would not be involved in management, therefore preventing the leaks of key technical information.

SK Hynix is fairly weak in NAND chip technology and has previously said it has decided to join the consortium as it sees business opportunities. In the past, Toshiba has sued the company over suspected theft of data related to flash memory technology which was settled by the South Korean firm for $278 million in 2014.

Tsunakawa declared that the consortium would not be changed before June 28 as Western Digital's offer had not found favour on the price and also because the US firm wanted to take control of the unit.

IT Pro has contacted SK Hynix and Bain Capital for a comment.

05/06/2017: Apple and Amazon to back Foxconn on Toshiba chip bid

Apple and Amazon are reported to have financially supported the Foxconn Technology Group in its bid for Toshiba's memory chip unit.

Chairman of Foxconn Terry Gou confirmed this in an interview with the Nikkei Asian Review.

Gou said: "Of course Apple and Amazon are offering money together, but I cannot comment on how much funds each company is putting on the table".

Foxconn is purportedly the highest bidder among five interested buyers, offering more than 2 trillion yen ($18.2 billion) for the chip business.

In April, Toshiba announced in its third quarter financial results that it had an income loss of $4.9 billion. In order to combat this, the company was considering selling off a majority stake in Westinghouse Electric, its nuclear power subsidiary, as well as its memory chip business. Foxconn was reportedly a potential buyer of the chip business and this is now looking even more likely to be true.

In order to sell the memory chip business rapidly, Toshiba hoped to split it off into its own company. Toshiba's joint venture partner Western Digital has joint-ownership of some of the chip unit's facilities and claimed that the sale might violate their contract.

Western Digital stated in mid-May that it will take the company to arbitration and on 2 June reaffirmed this: "Western Digital continues to believe that any actions by Toshiba to transfer its JV interests to a third party without SanDisk's consent clearly violate the anti-transfer provisions of the joint venture agreements."

IT Pro has contacted both Apple and Amazon but so far they haven't made a comment.

13/04/2017: Toshiba faces problems in sale of chip business

Toshiba revealed on Tuesday that it was facing up to $5 billion losses and is trying to sell its memory chip business in an attempt to raise money.

Bloomberg Technology reported  the sale may have hit a hurdle, however, with Toshiba's joint-venture partner Western Digital stating that the sale might violate the companies' contract. Western Digital CEO Steve Milligan said in a letter sent to Toshiba on 9 April that the company should negotiate exclusively with his company before any sale.

Milligan claimed the rumoured bidders for the chip business were unsuitable and the prices offered for the chip business were above its fair and supportable value. He also advised against selling to Broadcom, a company that has led the wave of consolidation in the chip industry over the last two years.

A spokesperson for Toshiba told IT Pro: "Toshiba does not comment on confidentiality agreements we have in place with our partners."

The two companies have joint-ownership of some of the chip unit's facilities and its sale is expected to raise $18.4 billion. Toshiba has narrowed down potential buyers after a first round of bidding and Bloomberg says Taiwan's Foxconn has indicated it's happy to pay as much as $27 billion for the business.

Toshiba restructured its divisions to try and counteract growing losses but was rocked when its nuclear power subsidiary, Westinghouse Electric, filed for bankruptcy.

Toshiba's income loss for April to December 2016 was $4.9 billion.

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