TOKYO May 15 Western Digital Corp has
sought international arbitration to stop partner Toshiba Corp
from selling its chips arm without its consent,
potentially derailing a much-needed capital injection for the
California-based Western Digital is a long-standing joint
venture partner and runs Toshiba's main semiconductor plant in
Japan. It has sought to bid for the Toshiba chips business, but
is not seen as the front-runner, given its bid has been trumped
by Taiwan's Foxconn and U.S. chipmaker Broadcom Ltd
, a source familiar with the matter has said.
In the early hours of Monday, Western Digital said it had
initiated arbitration procedures with the International Chamber
of Commerce International Court of Arbitration, demanding
Toshiba reverse a move to put its joint venture assets into a
hived out entity - Toshiba Memory - and that it stop an all-out
sale without consent from Western Digital unit SanDisk.
Toshiba argues that under their joint venture contract,
neither party can block a change of control by the other
partner. It argues Western Digital itself acquired the joint
venture interest when it bought SanDisk, and never sought or
received Toshiba's approval.
Western Digital, however, claims that Toshiba's move
breaches their contract.
"Toshiba's attempt to spin out its joint venture interests
into an affiliate and then sell that affiliate is explicitly
prohibited without SanDisk's consent," Western Digital chief
executive officer Steve Milligan said in a statement.
"Seeking relief through mandatory arbitration was not our
first choice in trying to resolve this matter. However, all of
our other efforts to achieve a resolution to date have been
unsuccessful, and so we believe legal action is now a necessary
Toshiba, battered by billions of dollars in cost overruns at
its now bankrupt U.S. nuclear business, is desperately trying to
accelerate the sale of its semiconductor business - the world's
second biggest NAND flash memory chip producer.
An arbitration process could drag out for months or longer,
putting Toshiba's presence on the Tokyo Stock Exchange in
jeopardy, as it needs cash from the chip unit sale to bulk up
its shareholder equity and stay listed.
The dispute could also derail Toshiba's financing plans, as
it hopes to offer the stake in its memory chip unit as
collateral for new loans from major lenders, a measure that the
lenders say also requires Western Digital's
Toshiba, which values the unit at least 2 trillion yen,
believes that a consortium of U.S. private equity firm KKR & Co
LP and Japanese government-backed investors would be the
most feasible buyer for the chips business, sources with direct
knowledge said last week.
The Japanese government has proposed that Western Digital
join their consortium as a minority investor, but the U.S.
company has said it needs to take control of the unit in order
to be fully in charge of operations, separate sources have said.
($1 = 113.33 yen)
(Reporting by Makiko Yamazaki; Editing by Nick Zieminski)