Western Digital gives Toshiba another headache by stalling deal

Toshiba may miss the self-imposed deadline to sell off its memory chip unit, as Western Digital causes the Japanese tech giant yet another headache. Talks with a consortium led by Western Digital were said to be in the ‘final stages’ for a deal worth around $17.5 billion. However, the US company is delaying the deal with sources saying that Western Digital is unhappy with the details of the deal.

According to Reuters, the two sides are yet to agree on specifics such as the size of Western Digital’s future stake in the business. While both sides are refusing to comment at the moment, Toshiba will be keen to hammer out a deal before the end of the month, or risk being delisted from the Tokyo Stock Exchange.

Toshiba wants to close the sale by the end of the fiscal year in March to ensure it does not report negative net worth, or liabilities exceeding assets, for a second year running. This could result in a delisting from the Tokyo Stock Exchange. Given regulatory approvals could take six months, the company has been hoping to reach a deal by the end of August to ensure it can close the sale in time.

Despite a bitter court battle between the two companies, Western Digital still looks favourites to acquire Toshiba’s valuable memory chip business. According to the Nikkei business daily report, Western Digital is now Toshiba’s preferred bidder after a previously mooted deal with private equity firm Bain Capital and SK Hynix looks to have hit the buffers.

In June, Toshiba picked a consortium including Japanese government-backed funds, private equity firm Bain Capital and South Korean chip maker SK Hynix as the preferred bidder for the prized unit. However, Western Digital’s multiple legal challenges have scuppered the deal. The subsequent legal battle between the two companies unnerved the state-backed funds, which demanded that Toshiba resolve the conflict before the sale.

And now it looks like Western Digital may get the win they wanted all along. The Nikkeisaid Toshiba CEO Satoshi Tsunakawa told lenders that it would focus on negotiating with Western Digital with the aim of agreeing to a deal by the end of the month. Western Digital is allegedly offering around 2 trillion yen ($18 billion) and would form an alliance with U.S. private equity firm KKR & Co as well as the two Japanese government funds that are part of the preferred bidder group.

Whether or not the two firms can put their very recent animosity behind them remains to be seen.