Toshiba to sell semiconductor business to Bain for $18bn

November 2017 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

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November 2017 Issue

In a bid to reverse its fortunes, Toshiba Corporation has entered into a share purchase agreement (SPA) to sell all shares of Toshiba Memory Corporation (TMC), a wholly owned subsidiary of Toshiba, to K.K. Pangea, a special purpose acquisition company formed by a Bain Capital Private Equity LP (including its affiliates, Bain Capital) led consortium.

An $18bn transaction, the SPA follows the decision by Toshiba’s board of directors to enter into a non-binding memorandum of understanding (MOU) with the Bain-led consortium. The MOU, which does not eliminate the possibility of negotiations with other consortia, memorialises the parties’ intent to negotiate a mutually satisfactory definitive agreement for the sale of TMC.

“Toshiba intends to reach a definitive agreement that fully meets our objectives at the earliest possible date,” said Dr Yasuo Naruke, senior executive vice president of Toshiba. “The sale of TMC must promote further growth of TMC’s memory business, and return Toshiba group to positive equity. The memory business requires timely investments, accelerated product development and the ability to quickly ramp-up large-scale production capacity.”

Founded in 2017 and based in Tokyo, TMC develops and manufactures non-volatile memory solutions, which include wireless secure digital (SD) cards, micro SD cards and USB sticks.

“We believe this proposal represents a solution that meets the needs of all stakeholders,” said Bain Capital in a statement. “First, it is endorsed by the management of Toshiba – the MOU is a strong signal of this support and signals the first time Toshiba has executed any agreement with a potential buyer. Second, it represents the best possible outcome for Toshiba by ensuring TMC’s independence and that the company, along with key semiconductor technology, remains in Japan. Third, the proposal has the support of a broad industry-wide coalition in favour of preserving the stability and independence of Toshiba.”

Founded in 1984, Bain Capital has made investments in more than 300 companies to date. In addition to private equity, Bain Capital invests across asset classes including credit, public equity and venture capital, managing approximately $75bn in total and leveraging the firm’s shared platform to capture opportunities in strategic areas of focus.

In an attempt to prevent the sale, California-based Western Digital Corporation, a joint investor in Toshiba’s main chip plant, is seeking an injunction with the International Court of Arbitration, arguing that no deal can be done without its consent.

“Western Digital’s SanDisk subsidiary has been a good partner to Toshiba, has honoured its commitments and obligations to the joint ventures, and has been steadfast in its efforts to reach a mutually agreeable resolution,” said John Hueston, counsel for Western Digital. “Toshiba has resorted to retaliatory actions to try to coerce SanDisk to surrender its consent rights. Absent any willingness on Toshiba’s part to resolve this matter in a constructive manner, we intend to continue our successful legal efforts into the binding arbitration process.”

In response, Bain confirmed that it would continue to honour all the contractual terms of the Western Digital joint ventures. “Western Digital’s position regarding their contractual rights is over-reaching and an attempt to frustrate the legitimate efforts of Toshiba to preserve an independent Japanese Toshiba memory company. Toshiba has sued Western Digital for more than $1b in damages for interfering in the sales process.”

Toshiba aims to close the transaction by the end of March 2018, upon approval at an extraordinary general meeting of its shareholders and clearance of all required processes, including competition law approval in key jurisdictions.

Dr Naruke concluded: “Moving forward, we will continue to make timely investments to expand operations to meet growing market demand.”

Fraser Tennant