Toshiba to sell part of
chip business, puts overseas nuclear ops under review
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[January 27, 2017]
By Makiko Yamazaki and Taiga Uranaka
(Reuters) - Toshiba Corp said it will sell a minority stake in its
memory chip business as it urgently seeks funds to offset an imminent
multi-billion dollar writedown, adding that its overseas nuclear
division - the cause of its woes - was now under review.
The drastic measures are set to be just some of the tough choices the
Japanese conglomerate will have to take as proceeds from the sale are
likely to only cover part of a charge that domestic media has put at $6
Still battered by a 2015 accounting scandal, Toshiba was plunged back
into crisis when it emerged late last year that it had to account for
huge cost overruns at a U.S. power plant construction business recently
acquired by its Westinghouse division.
Describing the nuclear division as no longer a central business focus
for the firm, Chief Executive Satoshi Tsunakawa said Toshiba will review
Westinghouse's role in new projects and whether it will embark on new
power plant construction. The division will also now fall under direct
Tsunakawa added Toshiba was looking to sell less than 20 percent of its
memory chip business - the world's biggest NAND flash memory producer
after Samsung Electronics <005930.KS> - which comprises the bulk of the
conglomerate's operating profit.
The firm is rushing to complete the sale by the end of the financial
year in March as failure to do so will likely mean that shareholder
equity - just $3 billion in the wake of the accounting scandal - would
be wiped out by the charge.
Sources have said Toshiba aims to raise more than 200 billion yen ($1.7
billion) from the sale and potential investors include private equity
firms, business partner Western Digital Corp <WDC.O> and the
government-backed Development Bank of Japan.
It is also selling other assets although it ruled out the sales of any
of its infrastructure businesses - which include water treatment,
railway and elevator firms.
"We've been raising funds through sales of stock holdings, real estate
and other assets," Tsunakawa told a news conference without disclosing
the amount, adding that various measures were being considered to boost
the firm's capital base by March.
Toshiba also said it may eventually list the memory chip business.
Executives declined to comment on the size of the writedown, which will
be announced on Feb.14 when Toshiba reports third-quarter results.
Mark Newman, an analyst at Sanford Bernstein in Hong Kong, said a stake
sale would likely only be a short-term band-aid.
"The NAND business is the only one with value, as it makes up all of the
semi-conductor profits, which comprise 75 percent of the overall
company's profit. I won't be surprised if they sell another 20 percent
in a few years time and then another 20 percent."
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Toshiba Corp CEO Satoshi Tsunakawa bows during a news conference at
the company's headquarters in Tokyo, Japan January 27, 2017.
Sources have said many private equity funds, including Silver Lake and
Permira, have signed non-disclosure agreements with Toshiba. But it
remains to be seen how well the sale will go given the end-March
deadline and caution on the part of potential investors.
"Partnering with Toshiba could be risky due to uncertainties over its
nuclear business," said an official at a global private equity firm.
"Chip businesses are highly cyclical and need massive capital
investment. Funds are cautious because they have had their fingers burnt
with chip investments in the past," said the official, who was not
authorized to speak to media and declined to be identified.
Western Digital, which operates a NAND plant in Japan with Toshiba, may
seem like a natural buyer of a large stake in the chip business, but a
sale before March might be difficult as it would likely invite a review
by anti-trust regulators.
Toshiba estimates the value of its memory chip business at 1-1.5
trillion yen ($9-13 billion), a person with direct knowledge of the
matter has told Reuters.
The business generated sales of 845 billion yen and operating profit of
110 billion yen in the past financial year.
Toshiba has also called on its main banks to support it and they have
agreed to not call in some loans early for now even as recent downgrades
of the firm's credit ratings violate some provisions in debt agreements,
people with direct knowledge of the matter have said.
Business weekly Toyo Keizai reported that Taiwan's Foxconn, the world's
largest contract manufacturer, is interested in either taking a stake in
or buying some of Toshiba's businesses.
Foxconn founder Terry Gou wants to build up the company's advanced
big-screen display business and the integration of chips, camera,
storage, streaming will be key, said one person familiar with the
company, adding he would "not be surprised" to see Foxconn start talks
with industry players including Toshiba.
A representative for Foxconn, formally known as Hon Hai Precision
Industry Co <2317.TW>, had no immediate comment.
(Reporting by Makiko Yamazaki and Taiga Uranaka; Additional reporting by
Umesh Desai in Hong Kong, Junko Fujita and Taro Fuse in Tokyo, JR Wu in
Taipei; Editing by Edwina Gibbs)
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