When Toshiba, the struggling Japanese conglomerate, decided to sell off part of its coveted microchip business this year, the American digital storage company Western Digital Corporation looked to be in an ideal position to scoop it up.

Western Digital, a part-owner of a Toshiba semiconductor factory in Japan, is as close to Toshiba’s chip operations as an outsider can be. It is said to have made an offer for the microchip business — whose total value has been estimated at close to $20 billion — although it declined to comment on whether it had done so.

But now the companies’ partnership has become a source of contention, leading to legal threats and complicating the sale of the chip unit.

The dispute centers on whether Toshiba can sell the semiconductor business without Western Digital’s consent, and it is compounding a run of problems for Toshiba, which is grappling with huge losses in its nuclear power division and badly needs the sale to succeed.

On Sunday, Western Digital said it had decided to take its conflict with Toshiba to the International Court of Arbitration, a tribunal operated by the Paris-based International Chamber of Commerce that adjudicates corporate disputes. The court has the power to adjudicate disagreements under the terms of the companies’ partnership, a common practice in international business tie-ups.

“All of our other efforts to achieve a resolution to date have been unsuccessful, and so we believe legal action is now a necessary next step,” Stephen D. Milligan, Western Digital’s chief executive, said in a statement.

Toshiba has already soliticted other bids for the microchip unit, whose products are central to modern digital gadgets like smartphones. Western Digital says Toshiba would be breaching legal contracts if it brought in a new owner without Western Digital’s consent.

In a statement, Toshiba said the sale was being “conducted properly” and that it had not breached any of its agreements with Western Digital. Western Digital, it said, “has no ground to interfere with the process.”

Acrimony between the two companies has been escalating. In a letter to Western Digital this month, Toshiba accused it of waging a “campaign” of “intentional interference” with the sale and threatened to shut Western Digital employees out of the shared Japanese factory.

Although Toshiba has not said exactly how much of the business it plans to sell, even a minority stake is expected to be worth billions of dollars.

The type of semiconductors Toshiba makes, so-called NAND flash memory chips, has become one of the crucial building blocks of modern electronics, essential to storing data in smartphones and other gadgets. Toshiba pioneered the technology 40 years ago and has kept it profitable, although competitors outside Japan have been elbowing into the market and competing for its customers.

Toshiba is already moving forward with an open auction, setting aside objections from Western Digital. It has solicited offers from about a dozen technology and financial companies, including Western Digital.

If the arbitration tribunal rules in Western Digital’s favor, Western Digital will, in effect, win exclusive negotiating rights.

That could significantly affect how much money Toshiba is able to raise with the sale. Some of the other bidders have offered more than Western Digital has, according to people briefed on the process.

The Japanese semiconductor factory is owned by Toshiba and SanDisk, a company that Western Digital acquired last year for $19 billion.

After Western Digital accused Toshiba of breaching their joint venture contract by laying groundwork for the semiconductor business sale, Toshiba sent a letter warning it would “protect its intellectual property rights by suspending Western Digital employees’ access” to the shared factory and its computer databases.

The identities of the bidders for shares of the chip business have not been made public. But people briefed on the matter said as many as a dozen companies from the United States, South Korea and Taiwan had approached Toshiba with proposals.

Foxconn, the giant Taiwanese assembler of Apple iPhones and other electronics, is one of them. Others include the American microchip maker Broadcom and SK Hynix of South Korea, according to the people briefed on the matter, who requested anonymity to discuss the private bids.

The closest thing to a homegrown bid has come from an alliance between a Japanese government-controlled investment fund, the Innovation Network Corporation of Japan, and KKR & Company, the American private equity firm. Some Japanese business leaders have expressed hope that the semiconductor business will remain in domestic hands.

By: DocMemory
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