U.S. private equity fund Kohlberg Kravis Roberts and the public-private Innovation Network Corp. of Japan will tender a joint offer for Toshiba's memory unit that would likely put them in pole position, it was learned Friday.

The team are expected to participate in a second bidding round in May after performing due diligence on Toshiba Memory. Toshiba partner Western Digital and the state-backed Development Bank of Japan may join in as well. The size of the bid remains to be worked out.

Toshiba plans to choose a winner before its general shareholders meeting in late June. The Japanese conglomerate has narrowed the field by about half from the 10 or so bidders that participated in the first round last month. The remaining players include hard-drive maker Western Digital and chipmaker Broadcom, both of the U.S., as well as South Korea's SK Hynix and Taiwanese contract manufacturer Hon Hai Precision Industry, also known as Foxconn.

Toshiba Memory has reportedly drawn bids of 2 trillion yen to 3 trillion yen ($18.3 billion to $27.5 billion). But "the amount offered isn't everything," a senior Toshiba executive said.

The company wants any buyer to preserve jobs and keep up capital spending on chip production. It must also take into account the interests of the Japanese government, which opposes any sale to a Chinese or Taiwanese bidder on concerns about technology leaks, and of Western Digital, which has operated chip fabrication facilities with Toshiba for 17 years.

The need to juggle all these considerations is bogging down the sale process. Western Digital plans to resist any sale of Toshiba Memory to a peer, contending that such a move would not be conducive to building a long-term relationship.

An acquisition by the KKR-INCJ team would let the American company's joint venture with Toshiba continue. Such a deal probably would win government support as well. Western Digital is sounding out KKR about a partnership and could join the consortium if the terms are right.

A sale to the Japan-U.S. team would avoid the lengthy antitrust reviews that would be needed if Toshiba Memory were bought by a fellow chipmaker. The INCJ's involvement also reduces the risk of running afoul of laws restricting investments in Japanese companies that relate to national security.

KKR has abundant financial resources, with some $130 billion under management at the end of 2016. The fund has a track record of investment in Japan, including the acquisitions last month of power-tool maker Hitachi Koki and Nissan Motor supplier Calsonic Kansei. INCJ likely took these points into consideration when choosing a partner for a joint bid.

By: DocMemory
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