Toshiba Pessimistic About Prospects for $18 Billion Chip Deal

By Takashi Mochizuki and Kosaku Narioka 

TOKYO-- Toshiba Corp. has mostly given up on an $18 billion sale of its chip unit because its officials consider near-term Chinese antitrust approval unlikely, leading them to accelerate a review of alternatives, people involved in the matter said.

Toshiba reached a deal last September to sell its NAND flash-memory unit to a group led by U.S. private-equity firm Bain Capital, but the deal has been waiting for a nod from antitrust regulators in China, one of the unit's top markets.

Chinese authorities have been generally uncommunicative about the status of Toshiba's application in recent weeks, according to people involved in the effort. The brushoff comes during a period of heightened trade tension between China and the U.S., home to Bain and others in the buyer consortium.

Chinese regulators gave an initial pessimistic review in April to another chip deal involving a U.S. buyer, Qualcomm Inc.'s $44 billion purchase of NXP Semiconductors NV.

People involved in the potential transaction say that under Chinese guidelines, regulators have until the end of this month to screen the Toshiba submission and that a last-minute approval isn't out of the question. Representatives of Toshiba and Bain said they were waiting for China's decision.

Within Toshiba, senior officials are moving on to next steps. "The deal is going nowhere, and the current scheme is dead," said a person directly involved in Toshiba's effort.

China's Ministry of Commerce referred queries to the State Administration for Market Regulation, which didn't immediately respond to a request for comment. China is consolidating its three antitrust regulators, including a unit at the Ministry of Commerce that has been handling Toshiba's application, under the State Administration for Market Regulation.

The Bain group got support from Toshiba customers including Apple Inc. and Dell Technologies Inc., as well as fellow chip maker SK Hynix Inc. of South Korea. Initially the parties hoped to close the deal by the end of March and saw Chinese approval as likely because they believed the deal would create a stronger competitor against market leader Samsung Electronics Co.

Sentiment changed in March as trade tensions heated up. As of April 1, Toshiba gained the right under its contract with Bain to cancel the deal. The company fortified its financial position late last year by raising more than $5 billion in new capital and now faces less pressure to sell the chip unit to raise cash quickly.

"We don't have any strong wishes that they should sell it," said Dai-ichi Life Holdings Inc. President Seiji Inagaki in an interview. His company is a lender to Toshiba and a shareholder.

Toshiba executives have been reviewing alternatives such as listing the chip unit on a stock exchange, changing the composition of the buyer group or keeping the chip unit as a full part of Toshiba, said ópeople involved in the discussions. Some investors outside Japan have been urging the company to cancel the deal, saying Bain's price--Yen2 trillion, or about $18 billion--was too low.

None of the alternatives appears to have gained sway among decision makers, in part because they are waiting for China to explain its decision.

Although the chip unit contributes the vast majority of the parent's profit, Toshiba's new chief executive officer, Nobuaki Kurumatani, said in April that making the unit independent of Toshiba was the best option because the parent didn't have the financial backbone to support the business. Keeping the chip unit competitive requires billions of dollars in investment each year.

Flash memory is widely used in smartphones, computer servers and other devices.

Xiao Xiao

contributed to this article.

Write to Takashi Mochizuki at [e-mail] and Kosaku Narioka at [e-mail]

(END) Dow Jones Newswires

May 08, 2018 06:04 ET (10:04 GMT)

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