Foreign Bidders Prove More Aggressive in Toshiba Chip Sale

Toshiba and the Japanese government want to sell the company’s semiconductor business to a domestic buyer, but foreign bidders are proving more determined and aggressive as the auction heads toward a final decision in the coming weeks, according to Bloomberg.

Taiwan’s Hon Hai, South Korea’s SK Hynix and American chipmaker Broadcom have all submitted preliminary bids for the Toshiba business valued at 2 trillion yen ($18 billion) or more, people familiar with the matter said. Hon Hai has indicated it may pay as much as 3 trillion yen, in part to force management into negotiations, said one of the people. Hynix is in talks with Japanese investors on a joint bid, in part to overcome political hurdles, the person said.

Toshiba and government officials are planning to seek offers led by Japanese acquirers, though none has emerged yet. The company could seek a bailout through what’s known as hougacho-hoshiki, or a form of community financing in which multiple domestic companies chip in a small amount of capital, one of the people said. Fujifilm may consider participating once it understands the investment framework, said spokesman Takao Aoki.

The Japanese government has made no secret of the fact that it wants to keep the business in the country, citing the strategic importance of chip manufacturing in future technologies. Chief Cabinet Secretary Yoshihide Suga has said flash memory chips are “extremely important“ for Japan’s growth strategy.

So far though, foreign bidders appear more likely to land the operation. Hon Hai, led by Chairman Terry Gou, has proven particularly aggressive, much like it was when Gou faced down Japan government opposition to win control of Sharp last year. In that case, he also made an extremely high opening bid to pressure management into negotiations, only to later backtrack and reduce his offer. Gou still won the auction and has made progress in turning around Sharp.

Hynix is in negotiations with partners for a joint bid, including Japanese investors, and has said the Korean company won’t own more than 20 percent of the chips business, one person said. That’s aimed at helping Hynix win approval for its offer from Japanese authorities. But Hynix hasn’t yet been able to organize a consortium to cover the full price of a 2 trillion yen bid. The South Korean company also may offer its partners an option to sell their equity to Hynix at a pre-determined price in the future. The conditions, aimed at reassuring other investors, may lead to resistance from Japanese officials who don’t want Hynix to have control over the chips unit.

Broadcom, which has considered joining with private equity investor Silver Lake on a bid, may instead make an offer on its own. Broadcom has emphasized it is a newcomer to the flash memory business so it won’t face the anti-trust scrutiny that Hynix will. Still Broadcom thinks it will gain synergies from combining Toshiba memory operations with its own chips business.