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WDC flirting with Japan funds to bolster bid for Toshiba's memory biz

Pursuing extra financial firepower to see off rivals

By Chris Mellor, 21 Apr 2017

Western Digital Corporation (WDC) is aiming to bulk up its bid for Toshiba's memory biz with state-backed funding support.

Reuters reports that WDC is talking to the Innovation Network Corporation of Japan (INCJ) investment fund and the Development Bank of Japan (DBJ) about a joint bid for Toshiba's flash memory division.

Toshiba is selling to escape potential financial oblivion following monstrous and as yet not fully quantified losses from its bankrupt US nuclear power station business. The loss for its current financial year could be $9bn with more to come from preceding years.

It has to resolve the situation by March 2018 or face delisting by the Tokyo Stock Exchange. This is a life-or-death situation for the conglomerate.

Regulatory antitrust reviews, which can take months, could delay any resolution. Broadcom, with no flash business of its own, would face the lowest such hurdle.

WDC talking with INCJ and DBJ was an obvious tactic once its ¥1tn ($9bn) bid was revealed to be trailing leading bidders Taiwanese Hon Hai Precision Industries (Foxconn) – ¥3tn ($27bn) – and Broadcom – ¥2.5tn ($23bn). Korea's SK Hynix is understood to be the fourth bidder also to the tune of ¥1tn ($9bn). All the numbers are speculative by the way, and based on insider leaks to media outlets.

The Japanese government doesn't want the business's jobs and IP to go to China via Foxconn, which has many factories there, and WDC, which is partners with Toshiba in a flash foundry business, doesn't want Broadcom taking over Toshiba's share in the joint venture.

WDC CFO Mark Long said: "We want to find a way to ensure we are aligned with INCJ and DBJ," and thus obtain extra cash to bolster its bid and so meet and/or beat Foxconn and Broadcom, as well as getting Japanese government blessing.

The company has previously told Toshiba that their joint venture terms give it the right to veto any memory business sale, and requested exclusive talks.

Long said: "Because of our flexibility and the different ways we can participate, our lawyers are very confident that we can address any trust risks in a way that would help get cash to Toshiba very quickly and then allow enough time for any antitrust review as necessary. We have had that discussion with Toshiba's attorneys and they actually see things very similarly."

He also, according to Bloomberg, implied that WDC had talked to Apple, and others, about the sale.

WDC's priority is that the joint venture remains competitive in the NAND market, meaning constant investments to feed 3D NAND technology developments, such as going beyond 64 layers and TLC (3 bits/cell) to QLC (4 bits/cell), and on to post-NAND technologies such as Resistive RAM.

For CEO Steve Milligan, bringing the joint venture under WDC control would represent a triumphant conclusion to its move into the solid-state memory field, securing WDC's expansion beyond the mature and possibly set-to-decline disk drive business.

Long said: "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. We have lots of different ways to participate in the solution than other players. It's more complicated than a single number."

Facing financial ruin, Toshiba may well come down to a single and very large number, though, with everything else subservient to that. ®

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