preparations for sale of stake in chip business: sources
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[January 20, 2017]
By Kentaro Hamada and Makiko Yamazaki
(Reuters) - Japan's Toshiba Corp has begun preparations to sell a
minority stake in its core chip business, people with knowledge of the
matter said, as it urgently seeks funding to avoid being crippled by an
upcoming multi-billion dollar writedown.
The industrial conglomerate has distributed non-disclosure agreement
forms to various funds including private equity firm Silver Lake, said
one of the people.
Its semiconductor business - the world's second-biggest NAND flash
memory producer after Samsung Electronics Co Ltd <005930.KS> - is
Toshiba's crown jewel, accounting for the bulk of its operating profit.
Facing a writedown on its U.S. nuclear business that media have reported
could be $6 billion, selling part of the chip business is one of the few
options left open to Toshiba, still battered by a 2015 accounting
Toshiba is rushing to split off its chip division and complete a stake
sale by the end of the financial year in March as a massive writedown
could wipe out shareholders equity that has shrunk to just $3 billion in
the wake of the scandal, separate sources said.
"Toshiba is desperate to avoid falling into negative net worth," said
one of the people.
After being put on the Tokyo bourse's watchlist in the wake of the
scandal, it is unable to tap equity markets.
Sources declined to be identified as they were not authorized to speak
on the matter.
A Toshiba spokesman said the company may split off its memory chip
business and sell a stake but it cannot comment on the specifics of the
process. Silver Lake declined to comment.
Media reports have put the planned size of the stake to be sold at
around 20 percent to 30 percent. Those reports could not be immediately
confirmed but sources have said that Toshiba is determined to hold onto
a majority holding.
The chip business could be valued at more than 1 trillion yen ($8.7
billion), industry sources have said, although some estimates for the
unit have ranged as high as 2 trillion yen.
OTHER FUNDING AVENUES
Another potential buyer Toshiba is considering for the stake is business
partner Western Digital Corp <WDC.O>, people familiar with the matter
It has also approached the government-backed Development Bank of Japan (DBJ)
for support, which is considering an investment in the chip business,
[to top of second column]
Workers prepare the new year's eve numerals above a Toshiba sign in
Times Square in Manhattan, New York City, U.S., December 26, 2016.
REUTERS/Andrew Kelly/File Photo
senior Toshiba executive, who declined to be identified, said that a capital
infusion from Western Digital might not be a viable option as it could take too
much time to clear an antitrust review. Western Digital has declined to comment
on the issue.
It remains to be seen, however, how much interest funds will show as they
probably would want majority control or at the very least a 33.4 percent stake
that would give them veto power over board decisions, a financial source said.
There has been little talk by sources of other strategic investors in Toshiba's
But Canon Inc Chief Executive Fujio Mitarai told Kyodo news agency that
the camera and office equipment maker would be willing to consider support if
there was a request, noting that Toshiba was an important buyer of its
in Toshiba plunged 16 percent on Thursday on the reports of the
bigger-than-expected $6 billion writedown, giving it a market value of just $9
billion. On Friday, they ended 1.8 percent higher.
The conglomerate was plunged back into crisis late last year after it emerged
that it would have to write down cost overruns at projects handled by a U.S
nuclear power plant construction firm which was recently acquired by its
Japan Trade Minister Hiroshige Seko told reporters on Friday that the government
was monitoring developments closely given Toshiba's position in NAND flash
memory chips and importance to Japan's growth.
He said the ministry was not working on any sort of rescue plan for the company
- a statement that does not rule out other forms of government help such as
investment from the DBJ.
(Reporting by Kentaro Hamada and Makiko Yamazaki; Additional reporting by Emi
Emoto, Junko Fujita and Ami Miyazaki; Editing by Edwina Gibbs)
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