Western Digital Tries to Block Chip Unit Sale by Toshiba

Western Digital sought international arbitration in its attempt to stop Toshiba, a partner, from selling its chip unit without giving its consent. This could potentially derail a much needed injection of capital for the conglomerate based in Japan.

Although jointly operating the main semiconductor plant of Toshiba, Western Digital is not considered a favored bidder for the second largest producer in the world of NAND chips, having submitted a far lower offer. Others to make bids included Foxconn from Taiwan, KKR a private equity company and Broadcom the U.S. based chipmaker.

The conglomerate based in Japan is depending on proceeds from its chip unit sale to cover billions of dollars in cost overruns at Westinghouse its now bankrupt nuclear unit based in the U.S.

This dispute could further jeopardize its listing on the Tokyo Stock Exchanged as new funds are needed urgently to shore up the company balance sheet.

On Monday, Toshiba said in an earnings report released, which was unaudited, that it ended its full year with a net loss of 950 billion yen equal to $8.4 billion and a shareholder equity that was negative in the amount of 540 billion yen.

With relations souring for months, Western Digital announced on Monday it initiated an arbitration procedure with the International Chamber of Commerce.

The arbitration procedure demands that Toshiba reverse its move to put assets, which are included in the joint venture, into Toshiba Memory and that it stop its sale that does not have the consent of SanDisk a unit of Western Digital.

Toshiba said that it had not been notified of any arbitration, that there had not been any breach of a contract and that Western Digital did not have any ground to interfere with its sale.

Despite the new setback, shares of Toshiba were up 4.2% buoyed by the news that there was progress made towards capping some nuclear plant liabilities in the U.S.

The owners of the Vogtle power plant located in Georgia that remains unfinished must come to an agreement to cap the responsibility of Toshiba, for the guarantee it made on the project plagued by delays, at $3.6 billion said people close to the situation.

The Western Digital dispute could derail the broader plans of Toshiba for financing as it looks to offer its memory chip unit stake as collateral for loans from creditors, a measure lenders said requires approval from Western Digital.

Toshiba has argued that under its joint venture agreement, neither party is able to block the change of control by the other.

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