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Techtoshiba

Why Toshiba Is Still Weighing Its Options In Selling Its Prized Chip Unit

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Reuters
Reuters
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Reuters
Reuters
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October 24, 2017, 7:41 AM ET

Toshiba said it is considering various measures in case the $18 billion sale of its chip unit does not close by the end of the financial year and leaves the embattled conglomerate short of funds needed to ensure it stays listed.

The deal needs to close by end-March or Toshiba will likely report negative net worth—where liabilities exceed assets—for a second year running. That could trigger an automatic delisting from the Tokyo Stock Exchange.

“Nothing has been decided, but it’s true that we are considering potential measures,” CEO Satoshi Tsunakawa said at an extraordinary general meeting where shareholders approved the sale to a consortium led by Bain Capital LP.

Proceeds from the sale are crucial to cover billions of dollars in liabilities arising from the conglomerate’s now bankrupt U.S. nuclear unit Westinghouse.

But a deal was only agreed last month after a long and contentious auction, and chances are high that it will not receive regulatory approvals by end-March as such reviews usually take at least six months.

Tsunakawa did not elaborate on what measures Toshiba may take but his comments follow the Tokyo Stock Exchange’s decision this month to remove the firm from a special watchlist which had prevented it from issuing new shares on the market.

Analysts believe, however, that ordinary investors are unlikely to get behind a firm that lurched from a 2015 accounting scandal to a full-blown financial meltdown last year.

“It may issue preferred shares worth several hundreds of billions of yen to investors such as Bain Capital or it might ask its banks for debt-to-equity swaps,” said Kentaro Harada, a credit analyst at SMBC Nikko Securities.

The sale of the unit—the world’s No. 2 producer of NAND semiconductors—is also facing legal challenges from Toshiba’s chip joint venture partner Western Digital, which opposes any deal without its consent and has sought an injunction with the International Court of Arbitration.

Toshiba said in a statement on Tuesday that it “remains fully determined to resolving the issue through the arbitration process.”

Harada said that if Western Digital did gain an injunction order, that could harm banks’ willingness to provide Toshiba with any further financial support.

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In addition to the chip unit sale, shareholders also approved Toshiba’s earnings report for the past business year and the appointment of 10 executives to the board, including Tsunakawa and seven other incumbent board members.

The earnings report has been controversial.

Filed in August after months of delays, it received an unusual “qualified opinion,” or limited endorsement, from Toshiba’s auditor, which said it thought Toshiba was late in booking losses at its Westinghouse unit. Proxy advisory firms Glass Lewis and ISS had recommended this month that Toshiba’s shareholders should not give their approval given the auditor’s mixed review.

Japan’s securities watchdog is also investigating accounting in its earnings report to see if it properly handled losses incurred by its U.S. nuclear unit, a source with knowledge of the matter has said.

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