Toshiba Corp. is aiming to finalize a deal to sell its memory chips business to a group led by Bain Capital at a Sept. 20 board meeting, despite opposition from partner Western Digital Corp., according to people familiar with the matter.

Toshiba’s effort faces resistance because the Bain group now includes several Western Digital competitors, including Seagate Technology Plc, Kingston Technology Co. and SK Hynix Inc., said the people, asking not to be identified because the matter isn’t public. Western Digital partnered with KKR & Co. to try to buy the chips business, but Toshiba opted for the Bain bid last week, signing a memorandum of understanding as they work toward a final agreement.

Toshiba has been in talks for months to sell its chips business and pay for a disastrous move into the U.S. nuclear sector. The company needs to raise the money by March to avoid seeing its shares delisted from the Tokyo Stock Exchange. The auction has been complicated by legal action from Western Digital, which has argued it should have veto rights in any sale because of its partnership with Toshiba in the chips business. The Japanese company disputes that and sued Western Digital for more than $1 billion for interfering in the auction.

Toshiba’s board might not be able to reach a final deal this week and if not would revisit the issue the following week, said one of the people. Kaori Hiraki, a spokeswoman for Toshiba, said Sunday she couldn’t comment on the details of the deal.

The KKR group, backed by Western Digital, was on the verge of winning the auction just weeks ago with support from Japan’s powerful Ministry of Economy, Trade and Industry, people familiar with the matter said at the time. Yasuo Naruke, head of the chips business, and several other top executives resisted the Western Digital proposal, the people said.

Apple Inc. helped swing momentum away from Western Digital by backing Bain’s effort. The iPhone maker is in talks to provide about $3 billion in capital for the bid. If the agreement is completed, it may exceed Apple’s largest deal, the $3 billion acquisition of Beats Electronics LLC.

Apple is interested in the chip unit because of the strategic importance of flash memory. Nand flash memory chips are among the most expensive components of the iPhone and the market for the chips is concentrated in the hands of just six suppliers, with rival Samsung Electronics Co. holding more than 40 percent. For the iPhone maker, Toshiba’s 18 percent falling completely into the hands of another supplier would further narrow its options and make pricing negotiations tougher. Western Digital had a 13 percent slice of the market last year and SK Hynix accounted for an similar portion, according to researcher IDC.

Hynix will initially contribute only debt to the Bain group to minimize anti-trust scrutiny, said one of the people familiar with the matter. The South Korean company will have an option to acquire about 15 percent of the unit later, the person said.

Read more on Why Toshiba Needs Cash Fast and What May Delay It

John Connaughton, Bain’s co-managing partner, confirmed the firm is working with Apple and Dell Inc., without disclosing details of the negotiations.

“A lot of people that want Toshiba Memory to be an independent company,” he said in an interview on Bloomberg Television last week. “The management is really aligned with us and supports us because we will be that party that retains that independence.”

Bain issued a statement identifying Seagate and Kingston as partners as well. The U.S. firm said it would honor Western Digital’s contractual terms but that the company is “over-reaching” in asserting its rights.

Toshiba has missed several self-imposed deadlines to reach a final deal. After initially identifying Bain as the preferred bidder in June, Toshiba said on Aug. 31 that it was in talks with three bidding groups and was struggling to reach a “definitive agreement.”

By: DocMemory
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