Thu, Apr 05, 2018 - Page 11 News List

Toshiba chip unit sale to go ahead despite hurdles

CONTROL ISSUES:The Chinese Ministry of Commerce could effect Toshiba’s value by imposing regulatory conditions, such as ordering it to separate some of its operations

Bloomberg

Toshiba Corp is sticking with its plans to sell its memory chip unit despite regulatory hurdles, said Nobuaki Kurumatani, who took over this month as the chief executive officer and chairman of the Japanese electronics maker.

It would take “substantial material” changes for the company to invoke its right to terminate its sale agreement with a group led by Bain Capital LP, Kurumatani, a former banker from one of Toshiba’s main creditors, said at a round table with journalists in Tokyo on Tuesday.

The company does not see its contractual right to scrap the deal as a “pure option,” he said.

Toshiba is in the process of selling its crown-jewel memory unit to a consortium led by Bain Capital to help cover billions of US dollars of losses after its US nuclear unit went bankrupt.

The ¥2 trillion (US$19 billion) sale, originally scheduled to close by Saturday last week, has been held back by a delay in regulatory approval from China.

Under the agreement’s terms, the new deadline for closing would then be May 1, and Toshiba would need to be cleared by Friday next week to meet that timeline.

“Waiting for approval from Chinese authorities is all that’s left to do,” Kurumatani, 60, said. “Not getting the approval would qualify as a material change.”

Chinese Ministry of Commerce officials could impose conditions that would impact the value of the business, such as requiring Toshiba to freeze prices or separate its solid-state disk and chip memory operations.

If the Bain deal falls apart, Toshiba has at least three options: renegotiate the terms, potentially at a higher price, take the memory chip business public or retain the division.

If he succeeds in selling the business, Kurumatani still has the unenviable job of rebooting growth at the 143-year-old conglomerate battered by accounting scandals without the key engines of semiconductors and nuclear power.

The proceeds from the chip sale could be used for acquisitions, Kurumatani said, declining to give further details.

While the Tokyo-based company struck the deal with Bain when it was desperate to raise cash and avoid a delisting, it no longer needs the money. Toshiba boosted its capital with the sale of ¥600 billion of new stock and is in the process of selling its nuclear assets for ¥410 billion.

At the same time, the memory chip business has become even more valuable: It generated ¥205 billion in operating income in the fiscal first half of the year, almost 90 percent of the company’s total.

The company is in a process of drafting a new restructuring plan that will shift Toshiba toward a business model centered on recurring revenues and new services for the internet of things, Kurumatani said.

It would cover the five-year period starting April next year and is to be released by Dec. 31, Kurumatani said.

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