Kioxia Holdings Corp. has approached Japan Investment Corp. about making a capital infusion to support its merger with Western Digital Corp. and strengthen the combined company’s financial base, according to people familiar with the matter.

Kioxia’s lenders are working toward submitting a commitment letter as soon as Friday to help facilitate the agreement, the people said, asking not to identified because the negotiations are private. The banks have signaled the new company’s capital is inadequate and called for addition investment to bolster its balance sheet. JIC, a state-backed investment fund established to boost Japan’s competitiveness in next-generation industries, is considering the request.

The two companies are seeking to wrap up negotiations this month and want to announce a deal no later than when San Jose-based Western Digital reports earnings on Oct. 30, said the people. They are facing opposition however from South Korea’s SK Hynix Inc., a competitor in the memory chip business that became an indirect shareholder in Kioxia when a Bain Capital-led consortium bought a controlling stake from Toshiba Corp.

It’s not clear how much money Kioxia is seeking from JIC or whether the fund is likely to support the merger. Western Digital, Kioxia, Bain, SK Hynix and JIC declined to comment.

Western Digital and Kioxia have talked for years about a possible combination, yet discussions have been snarled over issues of control, leadership, economics and politics. In theory, merging the two operations would help the companies compete against the memory chip industry’s largest players.

In the latest iteration of the talks, Western Digital would own slightly more than 50% of a newly created holding company, while Kioxia would own the rest, the people said. Western Digital’s flash business and Kioxia’s operations would be merged in the future. JIC has been approached about investing in an operating subsidiary owned by the new holding company, the people said.

Western Digital has grown frustrated at the long-delayed negotiations and may press for a revised structure to the deal if it drags on, one person said. The company wants to explain the status publicly this month, the person said.

Banks including Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc. and Mizuho Financial Group Inc. plan to pledge ¥2 trillion ($13 billion) in loans to help fund Kioxia’s merger with Western Digital’s flash memory business, Bloomberg News has reported. That commitment could come as soon as today, the people said.

It’s not clear yet how SK Hynix’s objections will affect the outcome of the deal talks. An agreement could get announced despite the company’s resistance, as Bain and Kioxia work on a resolution, the people said. While multiple people said SK Hynix has no veto rights over the deal, other people said the company’s consent will be necessary because it’s a major investor.

SK Hynix doesn’t see any benefit in the deal for itself, one of the people said, adding that the chance of any collaboration with Kioxia going forward looks slim. SK Hynix has also raised doubts about the benefits of merging the two NAND businesses and questioned potential synergies, another person said.

It’s possible that the companies will try to address SK Hynix’s concerns after a broad agreement has been reached with key stakeholders, one of the people said.

By: DocMemory
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