The first round of competitive bidding for Toshiba's memory chip business closed Wednesday, attracting 10 or so possible buyers.

The embattled Japanese conglomerate, sinking deeper into negative net worth after U.S. nuclear unit Westinghouse Electric filed for bankruptcy protection Wednesday, needs to raise money by selling a stake in the profitable chip business, which is to be spun off April 1. The urgency of fetching a high price for the stake has only intensified because of the filing.  

Bidders include U.S concern Western Digital, which partners with Toshiba on NAND flash memory production, and South Korean competitor SK Hynix. Other reported suitors include Taiwan's Hon Hai Precision Industry, known as Foxconn, as well as European and U.S. investment funds.

Toshiba has valued the memory business at 1.5 trillion to 2 trillion yen ($13.5 billion to $18 billion). But President Satoshi Tsunakawa stressed at a press conference Wednesday that "we are assuming [a price of] at least 2 trillion yen."

However, the offers to date have been rather low. Some bidders say they cannot pay even 1.5 trillion yen. Investment funds, seeking to reap capital gains by taking the business public or selling off the stake later, are skeptical of the market climate going forward and are tendering lower bids.

Some bidders have already offered around 2 trillion yen, but Toshiba will weigh its options based on various considerations, such as creating synergies and retaining jobs at the memory unit.

In response to Toshiba's request for government aid, the state-owned Development Bank of Japan has begun considering buying into the memory business, as has the Innovation Network Corp. of Japan, a public-private fund. The Japanese conglomerate will continue to solicit proposals as it negotiates with individual bidders.

Toshiba appears to have estimated the business value based on the $17 billion Western Digital paid for U.S. chip company SanDisk. But when that transaction was completed last May, the market was beginning to turn upward. Toshiba, aiming to complete its deal by the end of March 2018, may not be able to sell the stake for a comparable price.

"We will need to do 'traffic control' based on how bidding turns out," said a senior Toshiba official. The company hopes to draw up the most favorable deal by combining proposals from various suitors.

Coordinating buyers' interest with Toshiba's concerns -- such as keeping domestic plants and completing the sale as planned -- will not be an easy task. And the government is reluctant to let Toshiba sell the stake to a Chinese or Taiwanese company out of concern for preserving Japanese technologies, according to an industry ministry official. Hence, it will likely take some time before the company can finally decide on a buyer.

When Toshiba sold health care equipment unit Toshiba Medical Systems to Canon for 665 billion yen in March 2016, competing bids from Canon and Fujifilm Holdings drove up the price. The company hopes to do the same with the chip business. Whether it can pull this off again will hold the key to the embattled conglomerate climbing out of negative net worth.

By: DocMemory
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