Apple. Picture: REUTERS
Apple. Picture: REUTERS

Tokyo/New York/San Francisco — Apple is playing the role of king maker in the contentious battle for Toshiba’s memory chips business.

The iPhone maker is in talks to provide about $3bn in capital for Bain Capital’s bid for the unit, adding to financial support from Dell, Seagate Technology and SK Hynix, according to people familiar with the matter. This support convinced Toshiba to sign a memorandum of understanding with Bain and work towards a final agreement this month, said the people, asking not to be identified because the matter isn’t public.

Apple plans to take an equity stake alongside Bain, they said. If the agreement is completed, it may exceed Apple’s largest deal, the $3bn acquisition of Beats Electronics.

The California-based company is helping swing the deal away from Western Digital, one of Apple’s own suppliers that tried to buy the chips unit with KKR & Co. Apple’s money will help fill a gap left when state-backed Innovation Network Corporation of Japan (INCJ) and Development Bank of Japan (DBJ) decided to pull back from the Bain bid in the face of litigation from Western Digital. Apple spokesperson Josh Rosenstock declined to comment.

Toshiba has been in negotiations for months to sell off its chips business and pay for a disastrous move into the US nuclear business. The company needs to raise the money by March to avoid seeing its shares de-listed from the Tokyo Stock Exchange. The auction has been complicated by legal action from Western Digital, which has argued it should have veto rights in any sale because of its partnership with Toshiba in the chips business. The Japanese company disputes this and sued Western Digital for more than $1bn for interfering in the auction.

Apple has opposed Western Digital’s bid and decided to back Bain because of the business’s strategic importance, the people said. Apple depends on flash memory from Toshiba in its iPhones and iPods, and wants a continued supply so it’s not dependent on rival Samsung Electronics.

Toshiba said on Thursday it "regrets" that Western Digital is persistently over-stating its rights and that the Japanese company is committed to completing the chip sale by March. Meanwhile, the legal dispute is progressing towards a resolution, with a three-member arbitration panel likely to be assembled by the end of the month, according to people familiar with the matter. Arbitration is expected to take no more than six or seven months, which means a decision is likely before March, they said.

Toshiba selected a Bain-backed group as its preferred bidder in the chip sale in June, as the Tokyo-based company sought to close the deal that month. At the time, the Bain consortium offered about 2.1-trillion yen ($19.1bn) and included INCJ and DBJ. The effort was hampered by opposition from Western Digital, which solicited support from Japanese government officials and banks.

Last month, Japan’s powerful ministry of economy, trade and industry encouraged Toshiba to accept a rival offer from the Western Digital consortium, people familiar with the matter said at the time, in an effort to end the litigation and reach a deal quickly. Yasuo Naruke, head of the chips business, and several other top executives resisted the Western Digital proposal, the people said.

In the meantime, Yuji Sugimoto, MD for Bain in Japan, worked to win Apple’s support. The precise composition of the Bain group is still in flux and may change, the people said. There is no guarantee they will be able to reach a final agreement with Toshiba.

Foxconn Technology Group, the Taiwanese company that makes Apple’s iPhones, made an appeal this month for its own effort to acquire Toshiba’s chip unit, detailing support from partners including Apple. Still, the ministry’s officials have opposed selling the business to Foxconn because of its ties to China, home to many of the company’s factories.

Toshiba has missed several self-imposed deadlines to reach a final deal. After initially identifying Bain as the preferred bidder in June, Toshiba said on August 31 that it was in talks with three bidding groups and was struggling to reach a "definitive agreement".

Bloomberg

Please login or register to comment.