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The biggest threat to the emergency $18bn sale of Toshiba’s memory chip business was resolved on Tuesday as the troubled Japanese company announced a truce in its battle with US partner Western Digital.

The two sides buried the hatchet after a heated legal dispute that had threatened to tie up Toshiba’s restructuring in court and unnerved its lenders. The company has been racing against the clock to plug a hole in its balance sheet left by a disastrous investment in nuclear power in the US.

It set a target of selling the prized chip business to an investment group by the end of March.

The legal dispute had also posed a serious risk to Western Digital, which was facing being frozen out of investing alongside Toshiba in next-generation flash memory production. That could have ended its supply agreements with Toshiba, starving the company of an important product line.

The settlement was signalled last week after Toshiba’s board agreed to a general framework for the agreement. The terms of the deal involve Western Digital investing an initial $950m in the second phase of Fab 6, Toshiba’s advanced new facility. The two sides also agreed to extend their partnership agreements out as far as 2029.

The pressure on Toshiba eased sharply late last month after the company raised $5.4bn from an international group of hedge funds. The new capital reduced the risk that it would be left with a hole in its balance sheet at the end of its fiscal year, in turn reducing Western Digital’s negotiating leverage.

The two companies had entered an arbitration process to resolve their dispute, which sprang from Western Digital’s claim that its joint venture agreement gave it a right to veto the memory chip sale.

Earlier this year it sought to use that leverage to push for an acquisition of the chip business by its own investor group. Toshiba instead picked a consortium led by Bain Capital.

The US company’s aggressive legal strategy caused waves in Japan and was seen as a point of no return in the troubled relationship. Despite that, both sides tried to paint Tuesday’s agreement as a friendly resolution that would lead to a return to the joint venture they had in place before.

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