Clouds gather over Toshiba’s restructuring plans
By News Desk
16 May 2017

TOKYO (The Japan News/ANN) - Toshiba may face the growing risk of being delisted from the Tokyo Stock Exchange. 

Uncertainty is growing over Toshiba Corp.’s restructuring, after its U.S. semiconductor business partner Western Digital Corp. filed a request with the International Chamber of Commerce’s International Court of Arbitration to prevent the Japanese company from selling its flash memory subsidiary, Toshiba Memory Corp.

If arbitration procedures delay the sale of the flash memory unit, Toshiba would fail to clear its excessive debt and face the growing risk of being delisted from the Tokyo Stock Exchange (TSE.

Toshiba President Satoshi Tsunakawa stressed the legitimacy of the chip unit sale. “There are no grounds for Western Digital’s attempt to stop [the sale],” he said at a press conference on Monday.

To remove excessive debt held as of the end of March within a year, Toshiba spun off its flash memory business in April as a subsidiary, Toshiba Memory. It is currently preparing to sell the unit through bidding.

Toshiba and Western Digital have been at odds over their different understanding of the terms of their contract for joint production at a factory in Yokkaichi, Mie Prefecture. Western Digital has claimed that both they and Toshiba hold certain veto rights in the case of a third party becoming involved in operating the factory.

Western Digital Chief Executive Officer Steve Milligan said it is evident that Toshiba is not allowed to sell their joint venture interests without the U.S. company’s consent.

In contrast, Tsunakawa said such consent is unnecessary, as Toshiba plans to sell Toshiba Memory, which holds the right to operate the factory, as a whole. According to Toshiba, Western Digital did not seek consent from Toshiba in 2016 when it acquired SanDisk Ltd., which jointly operated the Yokkaichi factory with Toshiba. In light of this, a Toshiba senior official said the acquisition by a third party of Toshiba Memory, a joint operator of the factory, “will not require consent from Western Digital, just like the SanDisk case.”

Western Digital, a bidder for Toshiba Memory, appears to be concerned that potential offers could exceed ¥2 trillion. Since the U.S. company demanded exclusive negotiating rights based on the contract in April, its relationship with Toshiba has deteriorated. Rejecting Western Digital’s claim, Toshiba has threatened to block people related to the U.S. firm from the Yokkaichi factory.

The focus will now be on how the International Court of Arbitration handles this case. If the court accepts the request from Western Digital, that could affect the sale of Toshiba Memory. It usually takes more than a year for the court to proceed with a dispute.

In 2011, Suzuki Motor Corp. sought arbitration by the court to terminate its business partnership with German automaker Volkswagen AG. It took four years to end the dispute.

Even if the court starts arbitration proceedings, Toshiba can advance talks to sell the memory chip unit. However, the court’s decision is binding. If it rules in favor of Western Digital, the sales plans could fall apart. Companies other than Western Digital may also hesitate to bid for Toshiba Memory amid such uncertainty.

As Toshiba is projected to have a huge loss for the fiscal year that finished at the end of March, the company is expected to be downgraded from the TSE’s first division to the second division after August, in line with TSE rules. If it fails to sell Toshiba Memory and clear its excessive debt by the end of March next year, its shares will be delisted from the TSE.

The TSE has designated Toshiba shares as “Securities on Alert,” so the shares will also face delisting if the stock exchange finds the company has failed to improve its internal control system.

Toshiba will likely continue to be in hot water, as its delisting risk will grow if it fails to obtain approval from its auditor for a securities report for the year ending March 2017, which the Financial Services Agency requires companies to submit.

(US$ 1 = 113 Japanese Yen via oanda.com as on May 16, 2017)

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