Listen to this article
Give us your feedback Thank you for your feedback.
What do you think?
Case closed for Western Digital. For Toshiba shareholders the really interesting questions are just about to begin, as the group’s survival seems ensured. On Wednesday the two companies announced a settlement that will help the Japanese conglomerate push along the $18bn sale of its memory businesses to a consortium led by Bain Capital.
Sign-off from antitrust regulators is another hurdle that the sale process must pass. Toshiba will retain a 40 per cent stake according to the plan. SK Hynix, a South Korean memory manufacturer, is among the buyers. A ¥600bn ($5.4bn) capital raising last month alleviated bankruptcy concerns, reducing pressure to sell the profitable memory units, including the disputed joint ventures with Western Digital. That leaves other options: keep the business or raise money another way. One of those ways might be through an IPO.
The chessboard has become a lot more crowded because the new shareholders are 35 global hedge funds, including activists Elliott and Effissimo. They will probably push for more reforms than just a maximum return from the proceedings linked to the memory business.
Judging by the market reaction, Western Digital shareholders were more relieved than those of Toshiba. The West Coast memory group gets to keep its joint ventures stakes and will invest in new generation manufacturing capabilities. This will secure an important source of product supplies. Its shares rose 3.5 per cent in after-market trading, while Toshiba shares managed less than that during the Tokyo trading day.
Toshiba estimates that its memory unit alone will generate more than the group’s total operating income this year. Meanwhile, its infrastructure units still have stable contracts. By retaining equity in its chip business, Toshiba has some options where it previously faced an early demise. Clearly the activists see value and given the possibility of a turnround, the rest of the market should follow them.
Lex recommends the FT’s Due Diligence newsletter, a curated briefing on the world of mergers and acquisitions. Sign up at ft.com/newsletters.