Toshiba’s hopes of avoiding delisting hang by a thread

Discussions had advanced toward selecting a consortium featuring U.S. company Western Digital Corp. as the preferred buyer of Toshiba Memory Corp., but differences emerged during the final stage of talks between Toshiba and Western Digital. In June, Toshiba also failed to sign a contract for the sale despite picking a consortium of Japanese, U.S. and South Korean entities as the preferred negotiating partners. This indecisiveness has cast dark clouds over Toshiba’s management reconstruction.

 At the end of March, Toshiba’s liabilities exceeded its assets by ¥552.9 billion. If Toshiba cannot resolve this situation by the end of March 2018, it will be delisted in line with TSE rules.

 Failure to remain listed will have ramifications for Toshiba’s more than 360,000 shareholders. Toshiba will become unable to raise funds on the stock market and loans from banks worried about the company’s future business prospects could taper off. With Toshiba’s fate on the line, officials at the company’s main creditor banks and other business partners are unanimous in wanting Toshiba to avoid being delisted.

 Selling the profitable memory chip unit for about ¥2 trillion is the only option Toshiba has for escaping from its negative net worth situation and strengthening its financial base. Consequently, Toshiba has sought to sell this unit by the end of March 2018.

 Completing this sale will require clearing reviews by the Japan Fair Trade Commission and antitrust authorities overseas. The reviews will focus on the extent to which the purchaser of Toshiba Memory would increase its influence in the memory chip market.

 Most observers believe these reviews would take at least six months. Antitrust authorities will possibly conduct extra-stringent reviews of whether the competitive business environment would be maintained in the Toshiba case because two companies in the consortiums — Western Digital and South Korean chipmaker SK Hynix Inc. — are major players in the memory chip market. The review of the company established through the merger of the medical businesses of Sony Corp. and Olympus Corp. took seven months, and Canon Inc.’s acquisition of Toshiba’s medical equipment subsidiary required a nine-month check.

 Given these conditions, by counting back from the end of March 2018, “There won’t be time for the review unless the deal is sealed during August,” a source in the negotiations said. This view was widely shared.

 However, opinions remain divided inside Toshiba even at this stage of the process and the decision on a buyer was postponed. Negotiations with each candidate group will take further time, and it is possible Western Digital, which sought to block the sale of Toshiba Memory to another party through the International Court of Arbitration, could adopt a more hostile approach.
 Toshiba’s management has been pushed right to the edge of the ring — and the clock is ticking.