Toshiba has signed a deal to sell its chip unit to a consortium led by Bain Capital LP for 2 trillion yen ($18 billion). The consortium inlcudes Bain Capital, Hoya Corporation, SK hynix, Inc., Apple, Kingston Technology, Seagate Technology plc, and Dell Technologies Capital.
Toshiba's board agreed last week to sell the unit, the world's second biggest producer of NAND chips, to the Bain group. However, the signing was delayed because consortium member Apple demanded new terms on chip supply in return for funding, sources familiar with the matter have said.
Now the Japanese company says that it has entered into a Share Purchase Agreement (SPA) with Pangea - a special purpose acquisition company formed and ontrolled by a Bain Capital Private Equity, LP (including its affiliates, Bain Capital)-led consortium).
Pangea will fund the acquisition of Toshiba Memory Corporation (TMC) directly or indirectly from: Toshiba 350.5 billion yen (re-investment); Bain Capital 212 billion yen; Hoya Corporation (Hoya) 27 billion yen; SK hynix, Inc. 395 billion yen; US investors 415.5 billion yen.
In addition, Pangea intends to secure loans in the amount of approximately 600 billion yen from financial institutions and banks. US investors are comprised of Apple Inc., Kingston Technology Corporation, Seagate Technology plc, and Dell Technologies Capital.
With Toshiba and Hoya's investments, Japan-based companies will hold more than 50% of the common stock in Pangea, and going forward Japan-based companies will continue to hold a majority. After the TMC shares are transferred to Pangea, Bain Capital and TMC management will lead TMC's business operations.
The US investors will not acquire any common stock or voting rights over TMC. In addition, SK hynix will be firewalled from accessing TMC proprietary information and will not permitted to own more than 15% of the voting rights in Pangea or TMC for a period of 10 years, Toshiba says.
Innovation Network Corporation of Japan (INCJ) and Development Bank of Japan Inc. (DBJ), which operate as neutral, independent organizations dedicated to promoting industrial competitiveness, have also expressed their interest in investing in Pangea or TMC at a later time, su bject to satisfaction of certain conditions. Toshiba plans to leave decision-making in respect of the exercise of a portion of its voting rights held in Pangea to INCJ and DBJ, while Toshiba will retainthe right to exercise these voting rights in its own discretion in certain circumstances.
Western Digital has sought to prevent a transfer of Toshiba's interests in certain Joint Ventures between Toshiba and SanDisk LLC (SanDisk), a subsidiary of Western Digital, to any third party. Toshiba and SanDisk are currently engaged in litigation and arbitration. Toshiba says that the Share Purchase Agreement (SPA) with Pangea contemplates that the sale of TMC will be consummated even if the Joint Venture interests have not been transferred to TMC prior to the closing, unless the transfer of TMC's stock itself is blocked by an injunctive order.
Seagate said in statement that with its participation, it expects to enter into a long-term supply agreement that ensures sufficient raw NAND for its solid state drives or SSDs, which are faster and lighter than hard disk drives.
Pressure from the Japanese government, changing alliances among suitors and a slew of revised bids has drawn out the auction over nine months - heightening the risk that the deal may not close before the end of Japan?s financial year in March as regulatory reviews usually take at least six months.
If the deal does not close before then, Toshiba is likely to end a second consecutive year in negative net worth, putting pressure on the Tokyo Stock Exchange to strip it of its listing status.