Toshiba’s $19bn chip sale delayed as deadline missed

Bloomberg

After waiting more than a year to learn the fate of its memory chip business, Toshiba Corp. investors are going to have to hold on a
little longer.
The Japanese technology giant said it’s missed an initial deadline to close the 2 trillion yen ($19 billion) sale of the division by the end of March, pushing back the disposal
of its biggest business by at least a month.
The deal with a group led by Bain Capital has so far failed to win approval by Chinese regulators as they weighed the impact on the world’s biggest market for semiconductors. Under the agreement’s terms, the new deadline for closing would then be May 1, and Toshiba would need regulatory approval by April 13 to meet that.
Toshiba, which invented NAND chip technology, put the memory business on the auction block in 2017 as it sought to repair a balance sheet hammered by billions of dollars worth of losses from a push into nuclear energy. If the Bain deal falls apart, Toshiba has at least three options: re-negotiate the terms, potentially at a higher price, take the memory chip business public or retain the division.
“Most investors operate under an assumption that the sale will eventually go through,” said Hideki Yasuda, an analyst at Ace Research Institute. “But if it doesn’t, there is really no downside for Toshiba.”
Officials at China’s Ministry of Commerce are said to be concerned about the role of SK Hynix Inc., which is part of Bain’s group. The South Korean chipmaker may
end up with a significant stake in the business, consolidating power among the top players, people familiar with the matter have said. The ministry could also impose conditions that would materially impact the value of the business, such as requiring Toshiba to freeze prices or separate its solid state disk and chip memory operations.
Toshiba has yet to obtain approval from “some antitrust authorities” but still plans to go ahead with the sale as soon as possible, the company said in a statement.
While the Tokyo-based company struck the deal with Bain when it was desperate to raise cash and avoid a de-listing, it no longer needs the money. Toshiba boosted its capital with a 410 billion yen nuclear asset sale and 600 billion yen of new stock. At the same time, the memory chip business has become even more valuable: It generated 205 billion yen in operating income in the fiscal first half, almost 90 percent of the company’s total.
Making any changes would require navigating a broad group
of stakeholders. Sumitomo Mitsui Banking Corp. and Mizuho Financial Group Inc., Toshiba’s main lenders, have helped the company stay afloat and are keen to be repaid, Ace’s Yasuda said. The banks will play a key role in any decision and won’t easily change their support for the current terms of the deal, he said.
The deal’s prospects beyond the May deadline become more murky. The issuance of new shares in December brought in new shareholders that could take a more active role in the electronics maker’s affairs. A total of about 60 funds, including David Einhorn’s Greenlight Capital, Daniel Loeb’s Third Point and Effissimo Capital Management Pte, hold about a third of Toshiba.
A general shareholders meeting scheduled for late June could give them an opportunity to agitate for a better deal.
“These new shareholders bought in with expectations of growth,”
Yasuda said. “They are the ones that are likely to think that Toshiba is better off with the chips as part of the group.”