Bain consortium real winners as Toshiba announces 76 per cent jump in profits

The consortium lead by Bain Capital and Apple will be rubbing their hands together as Toshiba reports an enormous jump in its operating profit. Reporting a 76 per cent jump in its second-quarter operating profit, the company has been bolstered by a strong performance from its memory chip unit which it recently agreed to sell for $18 billion.

And that figure could soon look a snip, after Toshiba reported that its operating profit for the July-September quarter rose to 135.08 billion yen ($1.2 billion) from 76.88 billion yen a year earlier. Toshiba also said it would raise its capital investment in the chip business for this financial year to 600 billion from a previous plan of 400 billion yen, mainly to speed up the installation of a memory chip production line at Yokkaichi.

It is welcome good news for Toshiba that has suffered a horrendous year. After seven months of negotiations, lawsuits, twists and turns, Toshiba bosses finally penned an $18 billion deal for its chip unit, paving the way for a consortium led by Bain Capital and Apple to take over its memory unit. The deal looked like it was done some time before but Apple demanded new terms at the last minute sparking doubt that the deal would be complete. The consortium also includes SK Hynix, as well as Dell, Seagate Technology and Kingston Technology.

But bosses at Toshiba will now be scrambling to satisfy the March regulatory review, which usually takes six months to complete. Cutting it fine, if the deal does not close before then, Toshiba – hurt by liabilities at is now bankrupt nuclear unit Westinghouse – is likely to end a second consecutive year in negative net worth, putting pressure on the Tokyo Stock Exchange to strip it of its listing status.

The sale also faces legal challenges from Western Digital, Toshiba’s chip venture partner and rejected suitor, which is seeking an injunction to block any deal that does not have its consent. Western Digital’s attempts to block the deal shouldn’t come as a surprise though. Western Digital says that it has legal rights to block any deal made without its consent. An independent arbitration panel is set to be formed in the coming days, and an injunction could come later this year. A final ruling isn’t expected until at least 2019. 

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