REUTERS- Toshiba Corp
(6502.T)
is looking to sell a minority stake in its core semiconductor business to
Western Digital Corp (WDC.O),
a source said, in a bid to
dull the blow from a looming multi-billion-dollar
writedown on a U.S. nuclear acquisition.
The
laptops-to-engineering conglomerate, still recovering from a $1.3 billion accounting
scandal, shocked investors last month by announcing cost overruns at a U.S.
nuclear business it bought in 2015 which could now mean a charge against profit
topping $4 billion.
Toshiba does
not have many options to offset the impact of this writedown that could wipe
out its shareholders' equity. Given the fact the firm is on the Tokyo Stock
Exchange's watchlist, it is impossible for it to raise funds from financial
markets. The spin-off of its profitable but capital-intensive chip business and
a stake sale are perhaps the only ways out.
"It is
true that we are discussing a spin-off of our memory chips business, but
nothing has been decided," Toshiba said in a statement, after the Nikkei
business daily reported the firm was considering such a move earlier on
Wednesday. The chips unit generates most of the Japanese firm's operating
profit.
While
Toshiba did not confirm whether it was looking to sell around 20 percent in the
unit to Western Digital for up to $2.7 billion as Nikkei reported, a source
briefed on the matter said the two companies were in talks for a "minority
stake" sale.
"Toshiba
doesn't have any other options. I have an impression that this deal is their
last-ditch measure," said Yasuo Sakuma, portfolio manager and executive
officer at Bayview Asset Management Co.
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Toshiba,
which has been in talks with the U.S. company for a possible investment in the
chip unit, could also ask funds to invest in the business that could be valued
around 1 trillion yen ($8.9 billion), sources have told Reuters.
"There
are several candidates for investment," one of the sources said, without
giving details.
The Japanese
company is aiming to complete the spinoff by the end of March, the sources
said, adding Toshiba could eventually list the unit but that it would retain a
majority stake because it is currently almost the only growth driver.
According to
researcher IHS, Toshiba had a 20.4 percent share in the global NAND flash
memory market in April-June last year in terms of revenue, ranking second after
Samsung Electronics (005930.KS)
which has a 34.9 percent share.
The
combination of Toshiba and California-based data storage company Western
Digital would create a new industry leader.
Western
Digital, which operates a NAND flash memory plant in the city of Yokkaichi in
Mie prefecture with Toshiba, did not immediately respond to requests for
comment on the deal.
Toshiba
shares closed morning trade up 3.2 percent, versus the benchmark Nikkei average .N225that
was roughly flat.
The company
reported an operating profit of 78.3 billion yen from its chips and devices
business over April-September 2016, accounting for 81 percent of its total
operating profit.
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