Toshiba switches back to Bain-led consortium as preferred bidder in semiconductor business auction

US-Japanese consortium preferred over Western Digital - unless WD can raise its offer

A consortium led by Bain Capital has taken the lead in the race to buy Toshiba Memory Corporation, the semiconductor business of the Japanese electronics and engineering giant.

It comes after Toshiba switched its interest to Western Digital, Toshiba Memory Corp's 50/50 partner in the companies' manufacturing facilities in Japan, when earlier negotiations with Bain floundered on payment schedules and fears that a deal could be held up as a result of legal action from WD.

But on Wednesday, Toshiba revealed that it had entered into a memorandum of understanding with Bain Capital, after Bain came forward with new proposals in order to break the impasse.

"Toshiba's board of directors has determined to continue negotiations with the Bain-led consortium on the basis of this new proposal, and the company will work to expedite the conclusion of a stock purchase agreement by the end of September," the company revealed in a statement.

However, the MoU is non-exclusive, which means that there is still a window of opportunity open for rival bidders to come in with a better offer.

Toshiba has insisted that Western Digital has overstated its rights over Toshiba Memory Corporation, which it acquired when it bought SanDisk for $19bn last year. Those rights arise from a manufacturing agreement between Toshiba and SanDisk signed more than a decade ago, which Toshiba insists does not give either party a right of veto in the event of a sale.

Toshiba has been forced to sell its most profitable - and highly prized - business after its US nuclear development subsidiary Westinghouse had to be put-in to Chapter 11 bankruptcy protection following a decade of mismanagement under Toshiba.

Toshiba acquired Westinghouse from British Nuclear Fuels Limited (BNFL) for $5.4bn in October 2006.

The sale of Toshiba Memory Corp, which is now expected to bring in more than $20bn, will help put Toshiba back on a sound financial footing. That will avert an impending March 2018 de-listing from the Tokyo Stock Exchange on the grounds of negative net worth - liabilities exceeding assets - for a second successive year.

It also needs the funds before the end of the financial year in order to cover liabilities at Westinghouse and to pull it out of administration.