Western Digital Makes Case for Taking Over Toshiba Chip Unit

Western Digital Makes Case for Taking Over Toshiba Chip Unit

Western Digital is making a forceful case for its bid to take control of Toshiba’s memory-chip business amid a fierce bidding war, according to Bloomberg.

The company is in talks with state-backed investment funds Innovation Network and Development Bank of Japan about options for a bid, said Mark Long, WDC’s CFO, during an interview in Tokyo. Long also suggested his company has held discussions with Apple. Western Digital became Toshiba’s manufacturing partner in the flash-memory business when it acquired SanDisk for $15.8 billion last year. That investment is now under threat after Toshiba narrowed the list of contenders to a group that includes Western Digital’s rivals, including Taiwan’s Hon Hai, South Korea’s SK Hynix and American Broadcom.

Toshiba should negotiate with WDC first, Long said. “We think very differently, our priorities, first and foremost are focused on the joint venture remaining competitive,“ said Long, who was in Japan for meetings. Apple, which uses memory chips in iPhones and other devices, is said to be among the potential investors, in Toshiba. Asked about whether Western Digital has talked with Apple about getting its backing, Long said his company has “had conversations with almost everyone“ involved in the process.

“While others are working through a process, we have a clearer picture of what the business should be valued at and how to think about other things that affect value,“ Long said. “We have lots of different ways to participate in the solution than other players. It’s more complicated than a single number.“

WDC raised its objections to the sale in a letter from CEO Steve Milligan to Toshiba’s board members. He argued that the rumored bidders were unsuitable and the reported prices offered were above the fair and supportable value of the chip business. The CEO’s letter cautioned in particular against accepting a bid from Broadcom, which has led the wave of consolidation in the chip industry over the past two years. Toshiba disagrees with the assertion that a sale would violate the agreement between the two companies; the Japanese company plans to respond with a letter of its own, but has other options if the issue isn’t resolved, a Toshiba executive said.

Aside from the legality of the sale, Western Digital may struggle to match rival bids. The purchase of SanDisk has strained the company’s balance sheet, leaving it with net debt of $8.9 billion as of December. In January, Western Digital said it had cash and cash equivalents of $5.2 billion. The company said in January it had “liquidity available“ totaling $6.2 billion. The CFO said Western Digital is considering various options for paying for the business, including preferred shares.