Toshiba Corp.'s plan to sell off its semiconductor unit has suffered a major blow after its U.S. partner Western Digital Corp. asked the International Court of Arbitration on May 14 to block the sale of the unit.
Western Digital's request represents a huge problem for Toshiba because the Japanese firm had been hoping to raise more than 2 trillion yen (approx. U.S. $17.6 billion) through the sale of its semiconductor unit -- to make up for huge losses in its failed American nuclear arm.
At a press conference on May 15, Toshiba President Satoshi Tsunakawa hit back at Western Digital, insisting that the firm's move to sell off its semiconductor unit has "not infringed any contractual obligations."
Furthermore, Toshiba announced on the same day a negative net worth of 540 billion yen as of the end of March 2017. At this rate, there is a real risk that Toshiba might be delisted from the Tokyo Stock Exchange. With this in mind, it is vital for Toshiba's recovery to put an end to its current state of capital deficit by selling off its successful semiconductor arm by the end of March 2018.
However, Toshiba's semiconductor partner Western Digital is not in agreement. The U.S. firm claims that it has the right to reject the sale of the semiconductor unit, while putting its name forward in the bidding process, stressing that the unit should not be sold to anyone but Western Digital.
In response to this stance, Toshiba has hit back with claims of "sabotage" on the part of Western Digital, and has even threatened to shut out Western Digital technicians from their jointly-run manufacturing site in the city of Yokkaichi in Mie Prefecture.
In order to complete the sale of the semiconductor unit by the end of this fiscal year, Toshiba plans to select a buyer during June. However, with its partner Western Digital throwing a spanner in the works with its request to the International Court of Arbitration, there are now concerns that the sale will not be completed in time as it could take several years for the case to settle.
In addition to Western Digital, companies from South Korea and Taiwan have also put their names forward as interested buyers. The Japanese government has also stepped into the bidding process -- driven by fears of a technical brain-drain out of Japan -- and its state-backed Innovation Network Cooperation of Japan (INCJ) has teamed up with an American investment fund as interested buyers.
Notably, Western Digital's bid of about 1.6 trillion yen is lower than Toshiba's desired amount of 2 trillion yen or above. This has caused some people within Toshiba to think that, "Western Digital has started to shake things up because it knows the value of its bid is too low."
Attorney Shin Ushijima, who specializes in arbitration law involving companies, says, "If Western Digital really wanted to block the sale, it would have been quicker for them to go to a Japanese court with a request for a temporary injunction, instead of going to the International Court of Arbitration."
Meanwhile, Toshiba President Tsunakawa has been attempting to reassure people by saying that, "We will strive to explain Toshiba's legitimacy to potential buyers, and eliminate any concerns" -- indicating that the firm intends to carry on with the bidding process as initially planned.
However, it is clear that the relationship between Toshiba and Western Digital is at an extremely low point, with one Toshiba-related person stating, "The relationship between the two companies has become so bad that it is now beyond repair." If Toshiba hastily moves forward with the sale of its semiconductor unit, Western Digital could take additional countermeasures such as requesting a court to halt the process of the sale, putting the situation on a delicate knife-edge.