Bain Capital consortium finally bags Toshiba Memory Corp for $18bn

WD shakes fist as Toshiba Memory Corporation goes to rival consortium containing Seagate

Toshiba's auction to sell its semiconductor business is nearing its conclusion as the company today signed the $18bn deal with a consortium of companies led by Bain Capital, which will see Toshiba retain a 40.1 per cent stake.

Bain's consortium includes Apple, SK Hynix, Dell, Seagate Technology and Kingston Technology in various capacities, as well as Japan's Hoya Corp, a medical technology firm that also makes parts for chip devices.

Hoya will take a 9.9 per cent stake which, along with Toshiba's retention of a 40.2 per cent holding, will mean that the company nominally remains in Japanese hands, placating the Japanese government.

Apple is also expected to provide financial backing with the iPhone maker interested in securing a guaranteed supply of NAND flash storage chips for its products.

The signing of the deal was announced earlier today (PDF).

However, Toshiba may now face an intensification of legal action from Western Digital, the 50/50 partner of Toshiba Memory Corporation in the factories that produce both companies' NAND flash chips. Western Digital became a partner with Toshiba Memory only last year when it acquired SanDisk for $16bn.

It had wanted to take more control over the company, but struggled to raise the funds to compete with Bain Company, and fell out with Toshiba earlier in the year when it claimed that it had a right of veto over any potential suitor for Toshiba Memory.

Two days ago, after Toshiba had announced its plan to sign the deal with Bain Capital, Western Digital legal counsel, John Hueston, a partner at Hueston Hennigan LLP, indicated that the company planned to step up its legal action.

"Toshiba has resorted to retaliatory actions against its joint venture partner to try to coerce [Western Digital owned] SanDisk to surrender its consent rights, including its lockout of Western Digital employees in June and its attempt to exclude SanDisk from certain capacity investments - neither of which has any legal basis.

"Absent any willingness on Toshiba's part to resolve this matter with its JV partner in a constructive manner, we intend to continue our successful legal efforts into the binding arbitration process," he said.

WD has opened up three claims in the ICC International Court of Arbitration:

1. A request for arbitration "in response to Toshiba's purported transfer of its Flash joint venture interests to Toshiba Memory Corporation for the purpose of transferring them to a third party without obtaining SanDisk's consent in breach of the Flash joint venture agreements" on 14 May;
2. A request for arbitration following Toshiba's lock-out, which it subsequently reversed, of "SanDisk affiliates" from the manufacturing facilities in Japan that both Western Digital and Toshiba Memory claims equal ownership of. That was on 5 July; and,
3. A request for arbitration in response to Toshiba's unilateral investment in new manufacturing equipment at one of the two companies' jointly owned facilities in Yokkaichi, a complaint filed on 20 September.

A move to conclude a deal in August stalled after Bain reportedly got cold feet over the prospect of prolonged litigation involving WD, while Toshiba itself also needs to ensure that the deal is concluded and the funds are in its bank accounts before the end of March next year to ensure it is not delisted from the Tokyo Stock Exchange.