Western Digital Makes Case to Take Over Toshiba Chip Unit

Anas Sheikh | 29-Apr-2017

Western Digital is planning to take over the Toshiba’s corp’s memory chip business unit through a bidding war. They make a solid case for that purpose. 
Mark Long (chief financial officer of Western Digital) has disclosed in an interview in Tokyo that the San Jose (California based company) has held different meetings with the state-backed investment funds Innovation Network Corporation of Japan and Development Bank of Japan Inc. about best possible options for bid.  Long told that company is communicating with Apple Inc. as well regarding this bid.

Western Digital Makes Case to Take Over Toshiba Chip Unit

Image courtesy- reuters.com

Western Digital acquired SanDisk Corp. for 15.8 Billion last year. After this transaction, Western Digital becomes manufacturing partner of Toshiba in making flash memory chips. Toshiba plays a smart move here. It shortened the list of its contenders to a group which includes competitors of Western Digitals. It includes Taiwan Hon Hai Precision Industry Co., South Korea’s SK Hynix Inc and chipmaker Broadcom Ltd. Mark Long said that Toshiba should discuss with Western Digital first.

Long said: In a meeting in Japan “We think very differently, our priorities, first and foremost are focused on the joint venture remaining competitive”.
Apple Inc. uses chips almost in all its devices. So it can become a customer of Toshiba in future. In an interview when Long is asked about either he has negotiated with Apple for assistance or not. He answered, “had conversations with almost everyone (With every stakeholder)”.

In Tokyo’s stock market the share of Toshiba decreases by 3 percent at 9:17 am on 21st of April. Its overall decline was 22 percent this year. 
Toshiba has set the target to complete the sale of chips by March 2018 to prevail the shortage of cash. The alterable future offer can be about 2 trillion yen ($18.3 billion). While Hon Hai shows his interest to pay 3 trillion yen, according to Bloomberg. A Large number of bidders will decrease the financial burden of this big deal. Japanese companies would play a key role here.

Long said on different occasion “While others are working through a process, we have a clear picture of what the business should be valued at and how to think about other things that affect value”. He added “We have lots of different ways to participate in the solution than other players. It’s more complicated than a single number”.

Steve Milligan, CEO of Western Digital reported its allegations via letter on sales to Toshiba’s board of directors on April 9. He unveils that some of the dummy bidders offered prices that are above the fair market value of chip to create uncertainty. He mentioned in his letter about Broadcom bid which causes the chip industry to stabilise over last two years. 

Talking about Toshiba Long said “We know that their situation is extremely stressful and challenging. We do want them to understand that we want to help provide a good solution. We have to make sure that at a minimum it doesn’t hurt us”.

Toshiba plans to reply the letter of Western Digital by the same means. If a letter doesn’t resolve the issue then it will consider the alternatives. It denies the assumption about violating the sale agreement between two companies.

According to Long, Western Digital had some successful meeting with INCJ and DBJ. And they want to bid together to take almost more than the 30 percent. And Toshiba shows no hesitation at all from the investors like INCJ and DBJ.

Long told the Japanese investors “They are part of the deliberative process that’s thinking about the long term solutions, their concerns, and their goals are probably the easiest for us to relate”.
Westinghouse nuclear business forces Toshiba to sell its assets to deal with heavy write- downs. It occurs due to the crossing the deadlines in construction projects and increasing the expected total cost. 
While analysing facts and figures, it seems difficult for Western Digital to match the bids of arch rivals. The decision went wrong was the purchase of the SanDisk company. It was having a net debt of $8.9 Billion in December. The company reported that they have liquid assets around $6.2 billion in January.

The chief financial officer Long said a company is looking through all the possible monetary options for its business and the shareholders.

About the Author
Anas Sheikh
I am a businessman by profession. So my area of interests in writing also belongs to business articles because I am passionate to become a professional writer.