Toshiba Corp. and Western Digital Corp. have agreed in principle to settle their legal dispute over the $18 billion sale of Toshiba’s flash-memory business with a formal announcement expected within the next 24 hours, according to people familiar with the matter.

The U.S. company will drop arbitration claims in the U.S. that were aimed at stopping Toshiba from selling the chip business to a consortium led by Bain Capital, while the Japanese company will end its legal claims against Western Digital, said the people, asking not to be identified because the matter is private. As part of the settlement, Western Digital will be able to invest alongside Toshiba in a cutting-edge chip plant in Japan and receive a guaranteed supply of next-generation memory chips, they said.

The partners have been locked in a legal battle since early this year after Toshiba said it would sell the chip business to pay for enormous losses in its U.S. nuclear business. The U.S. company had argued Toshiba needed its consent to sell the business, an assertion the Japanese company disputed. Toshiba needed to raise capital to avoid seeing its shares delisted from the Tokyo Stock Exchange.

Toshiba shares have surged 10 percent since Bloomberg News reported the two companies were near a resolution to their dispute. Shares rose 1.3 percent in Tokyo trading Tuesday.

Toshiba had stepped up pressure on Western Digital in recent weeks. Last month, the Tokyo-based company said it would accelerate investments in its new Fab 6 chip facility in Yokkaichi, blocking Western Digital from participating and raising the prospect the U.S. company wouldn’t get supplies of newer chips that it will need to remain competitive. Toshiba also unveiled plans to raise 600 billion yen ($5.3 billion) in a stock sale, a deal that would help it avoid delisting even if the chip business sale isn’t completed on time.

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Toshiba’s earnings results last month underscored the importance of the semiconductor unit. Profit in the memory business quadrupled to 205 billion yen in the first half of the fiscal year, helped by demand for data storage in smartphones and solid state disks. The division accounted for 88 percent of the company’s operating income.

Toshiba agreed in September to sell the business to a group of investors, including Bain, Apple Inc., Dell Inc. and South Korea’s SK Hynix Inc. The deal is structured so that Toshiba and Hoya Corp. will hold a majority of the voting stock, a solution that keeps control of sensitive technology in Japanese hands. The transaction is still subject to regulatory approvals.

By: DocMemory
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