Toshiba has told its creditor banks that it will be difficult to select joint venture partner Western Digital as the buyer of its chip business after talks between the partners sputtered the previous day, sources close to the matter said Thursday.

In a meeting with major banks including Sumitomo Mitsui Financial Group and Mizuho Financial Group in Tokyo Thursday, Toshiba revealed that all of the bidders offered at least ¥2 trillion ($17.9 billion) for Toshiba Memory, which the company is eager to sell to fund its turnaround, the sources said.

The creditors repeated their demand that Toshiba sell off the flash memory business early to improve its finances, adding that it needs to avoid logging a second consecutive year of negative net worth in the year to next March.

Western Digital CEO Steve Milligan and Toshiba President Satoshi Tsunakawa met in Tokyo after the U.S. joint venture partner in the chip unit based in Yokkaichi, Mie Prefecture, reportedly offered to buy it for ¥2 trillion.

While Toshiba is reluctant to accept Western Digital’s proposal, it told the banks that the two companies will continue to seek common ground, according to the sources.

Toshiba also told them it is inclined to choose a U.S.-Japan consortium that includes state-backed turnaround fund Innovation Network Corp. of Japan and the state-owned Development Bank of Japan, as the buyer, the sources said.

Discussions were also held over the issue of using Toshiba Memory shares as collateral for fresh loans — a measure Toshiba has been unable to carry out due to Western Digital’s opposition.

Earlier this month, Western Digital took legal action against Toshiba’s plan to sell a majority stake in Toshiba Memory, asking the International Court of Arbitration of the Paris-based International Chamber of Commerce to block the sale. The U.S. firm has also demanded an exclusive negotiation.

Toshiba, reeling from its worst financial crisis ever, has been in the process of trying to sell a majority stake in Toshiba Memory to raise at least ¥2 trillion to offset huge losses in its nuclear power business and eliminate its negative net worth by March. Failure to do so would likely cause it to be delisted from the Tokyo stock market.

Toshiba holds a 50.1 percent stake in the joint venture and Western Digital the rest. Last month, Toshiba spun off the chip business into the newly established Toshiba Memory, which also took over Toshiba’s joint venture interest. Western Digital slammed the procedure and said the transfer and subsequent selling process breaches their joint venture contract.

By: DocMemory
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