Toshiba to sell chip unit to Bain Capital for $22b

Bain Capital Private Equity has signed a definitive agreement with Toshiba Corporation (Toshiba) for the purchase of Toshiba Memory Corporation (TMC). A special purpose acquisition company formed by the Bain Capital-led consortium, K.K. Pangea (Pangea) has entered into a Share Purchase Agreement (SPA) with Toshiba for the purchase of all shares of TMC, a wholly owned subsidiary of Toshiba.

The consortium includes US investors Apple, Dell Technologies Capital, Kingston Technology and Seagate. These investors have non-voting shares and will not participate in the governance or operations of the company. The consortium also includes SK Hynix. Part of SK Hynix’s investment will be in convertible bonds, which can only convert to equity with limitations and will be subject to the approval of competent antitrust authorities.

It is understood that the sale is vital to Toshiba’s long term survival, following the heavy losses that amounted to billions incurred earlier this year at its US nuclear operation Westinghouse. Following this, it’s losses had steadily increased and it has been revealed that it has incurred a $11.2 billion loss in the last financial year. Hence the success of this sale would potentially see new life breathed back into the company which had promised to be back in the black by this year.

Adding to the drama, Western Digital, a global data storage specialist, a Toshiba partner, is filing an injunction against the sale proceedings to block the sale. It said in its own press statement that Toshiba’s decision for the sale was “disappointing”, given that it had made major concessions.  The statement mentioned that Western Digital opposed the deal, arguing that the inclusion of SK Hynix, a rival chipmaker, would increase the risk of leaks in technology and not clearing regulatory reviews.

According to the press statement by Bain Capital, the consortium together with Toshiba, who remains a significant investor, will control the Board and governance of the company. It will support TMC management to ensure the business and key semiconductor technology remain in Japan. Hoya, a global diversified company of innovative high-tech and med-tech products, will also invest in TMC as a common equity holder, subject to the terms and conditions in its commitment letter executed. The consortium will abide by and respect all the contractual terms of the Western Digital (WD) joint venture.

David Gross-Loh, a managing director of Bain Capital Private Equity, said “This is a positive outcome for both the company and the broader industry as it ensures an independent Toshiba Memory Company. The business will remain in Japan and continue to develop its leading semiconductor technology supported by significant capital investments planned by our consortium. Further, the participation of leading industry players will ensure that the semiconductor industry remains highly competitive and can respond to fast-changing demands.”

Following an extensive and thorough bidding process, the Bain Capital-led consortium was selected based on several considerations, including the offer price, the ability to secure continued growth for the memory business by supporting significant capital investments, employment security for TMC’s employees, commitment to protecting key technology in Japan, the likelihood of securing competition law approvals in key jurisdictions, and certainty of completion by end of March 2018.