US private equity firm Bain Capital has made a $10bn bid for Toshiba’s prized Nand memory chip subsidiary that could result in management running the Japanese unit getting a stake in the business.
The proposed arrangements are meant to enhance the political acceptability of a deal in which some of the capital behind the Bain bid comes from South Korean chipmaker SK Hynix.
Toshiba set a deadline of Friday for binding offers for the Japanese industrial conglomerate’s flagship technology asset. The auction has become politically fraught because the Japanese government is reluctant to see the chip business fall into the hands of an Asian company.
Government officials said Bain had held discussions about collaborating with the Innovation Network Corporation of Japan, the government-backed fund coming under pressure from the administration of prime minister Shinzo Abe to lead a bid for Toshiba’s chip business. However it is unclear which bid, if any, INCJ will participate in.
More than a dozen companies and funds have expressed interest in buying Toshiba’s chip business, said bankers briefed on the auction.
Leading contenders include Taiwanese technology group Foxconn and US chipmaker Broadcom, which has been working with private equity firm Silver Lake. Western Digital, another US chipmaker, is also interested.
Bain’s bid has some similarities to a management buyout in that it could result in executives at the chip subsidiary having shares in the unit, said people familiar with the proposals. Toshiba could also have shares.
Under the terms of the offer, Bain would take a 51 per cent stake in Toshiba’s chip business.
The remaining 49 per cent could be split between two US technology companies that have not been identified, management at the chip unit, Toshiba, and some smaller investors. Even though it is due to provide capital for the Bain-led offer, SK Hynix is not expected to secure shares in the unit.
In a regulatory filing on Friday, SK Hynix confirmed it was bidding for Toshiba’s chip business. One person close to the company clarified that it was planning to participate in the Bain-led offer.
Looming over the sale of Toshiba’s main technology asset is a fierce legal dispute between the Japanese conglomerate and Western Digital, which have a chip joint venture that is critical to the US company’s business.
Western Digital is threatening to block the sale of Toshiba’s chip unit on the basis that a deal without its consent would be a breach of their joint venture, although the Japanese group has rejected this argument.
Under the terms of Bain’s bid, Toshiba’s joint venture with Western Digital would remain intact, but the US chipmaker may oppose the offer due to concerns about the private equity firm having a controlling stake and worries about the potential for technology leaks to a South Korean rival, said two people close to the talks.
Toshiba has said it will not accept less than ¥2tn ($18bn) for the chip business.
The fact that Bain’s bid is well below this level may reset market expectations about what Toshiba can raise from the auction, said one banker.
Foxconn has previously indicated it would be willing to pay up to ¥3tn for the Nand business.
Toshiba, which flagged problems at Westinghouse in December, on Monday reported a net loss of ¥950bn for the year March 31, mainly because of the nuclear subsidiary’s troubled projects.
Bain, Toshiba, the INCJ and Western Digital declined to comment. Foxconn, Broadcom and Silver Lake did not immediately respond to requests for comment.
Additional reporting by Song Jung-a in Seoul
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