Toshiba Shareholders Approve Chip Unit Sale and Board Appointments

Toshiba investors approved the sale of its memory chip unit and backed the appointment of new board members over the objections of proxy advisers, according to Bloomberg.

The company’s shareholder meeting voted in 10 directors, including President Satoshi Tsunakawa. Glass Lewis & Co. and Institutional Shareholder Services earlier this month advised against supporting Tsunakawa’s nomination and raised questions over governance at Toshiba. Meeting also approved full-year earnings results which received a qualified endorsement from its auditor.

Glass Lewis recommended voting against 9 out of 10 board member nominations, while ISS voiced opposition to five. Tsunakawa should be held responsible for continued losses and the failure to establish internal controls, ISS said. Glass Lewis reiterated concerns over accounting irregularities at Toshiba’s medical business that occurred under his leadership.

Toshiba aims to complete the sale of the chip unit by March, helping the company avert a capital deficit that could lead to its delisting. The deal is being challenged by manufacturing partner Western Digital and still needs to receive regulatory approval. Toshiba is considering alternative options in case the sale doesn’t close.

Bain Capital led consortium warned Western Digital to give up attempts to overturn the deal and settle its legal claims if it wants the relationship to continue. In his first public interview about the dispute, David Gross-Loh, the Bain managing director behind the deal, forcefully disputed those claims. He said Western Digital’s legal challenge is based on a misrepresentation of its rights and that the deal is structured so there is no threat to its business. He warned however that their access to flash memory products is at risk because of its aggressive legal tactics.

The consortium prepared a document about the transaction. Nine of the 16 questions address the Western Digital relationship. One states the company “is either misreading or misrepresenting“ its agreement with Toshiba; another says that the companies three joint venture arrangements expire in 2021, 2025 and 2029, indicating WDC may not have rights to flash-memory production after that final date.

By going public with its characterization of Western Digital’s position, the Bain group is putting pressure on the U.S. company’s management to negotiate a truce and remove a key obstacle to closing the sale. Any delay in closing the deal and investing in new production only helps Samsung, the largest maker of the chips.