Broadcom Ltd and a group led by KKR & Co are emerging as the two leading bidders for Toshiba Corp’s semiconductor unit as of Friday’s deadline for second-round offers, according to people familiar with the matter.
Broadcom, based in San Jose, California, is offering about ￥2.2 trillion (US$20 billion) and would face simpler regulatory reviews than some rivals, said one of the people, asking not to be identified because the matter is private.
The competing group, which includes state-backed Innovation Network Corp of Japan (INCJ) and the Development Bank of Japan, plans to offer about ￥1.8 trillion and would benefit from support from the country’s government, the people said.
There were a total of four bids, one of the people said.
Western Digital Corp has been in talks to join the Japan group, but the parties have not been able to agree on how to divvy up ownership.
The company has been offered a stake of less than 20 percent, but it wants a controlling share, they said.
Toshiba and Western Digital executives plan to meet this week to discuss these and other issues, one person said.
Apple Inc, which uses Toshiba memory chips in its products, is still considering whether to contribute capital to one or more bidders, they said.
The type of chips, known as flash memory, is enjoying a bumper year. Micron Technology Inc, Samsung Electronics Co and Hynix have all reported strong demand for the product as the industry moves away from magnetic disks in computer storage.
Toshiba’s future as a public company depends on selling the memory chip unit and raising cash to pay for losses in its Westinghouse nuclear business.
Time is critical because its shares may be delisted if it has not closed the deal by March next year, the end of its fiscal year.
While Hon Hai Precision Industry Co (鴻海精密) and South Korea’s SK Hynix Inc have also expressed interest with preliminary bids of as much as US$27 billion, Japan’s government is reluctant to let the business fall into their hands.
SK Hynix is looking to partner with Bain Capital LLC, a person said.
Toshiba may not decide on a buyer before a shareholders’ meeting scheduled for next month and nothing has been decided for the third bidding round, one person said.
The deal talks are still fluid however and the leading bidders may change.
“Whoever INCJ decides to go with, is likely to be the winner, regardless of the size of the bid,” Macquarie Group Ltd analyst Damian Thong said. “A larger bid that doesn’t have INCJ in it, is unlikely to be successful.”
Western Digital has not made clear whether it will join the KKR-Japan consortium and could still make an offer on its own, the people said.
The US company’s first-round bid was well below rival offers and its balance sheet may not be strong enough to make a competitive offer.
The powerful Japanese Ministry of Economy, Trade and Industry has become involved in organizing the group that includes local funds and KKR, the people said.
The government has encouraged Toshiba and Western Digital to work out some compromise.
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