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Toshiba sues Western Digital for blocking chip unit sale

Toshiba Corp. said Wednesday it has filed a damages suit against
Western Digital Corp, seeking 120 billion yen ($1.06 billion) in
compensation for blocking its planned chip unit sale, further
escalating the spat between the joint venture partners.

The Japanese conglomerate said in a statement that "proceeding
with the sales process for (Toshiba Memory Corp.) does not violate
any consent rights held by Western Digital; Western Digital's claims
are false, designed only to interfere with the sale process, and have
damaged Toshiba and (Toshiba Memory)."

Toshiba said it has asked the Tokyo District Court to stop
Western Digital from breaching unfair competition laws, stating that
the U.S. firm has "improperly obtained" Toshiba and Toshiba Memory's
trade secrets.

A Western Digital spokesperson declined to comment on the matter.

As of Wednesday, Toshiba said it has blocked Western Digital's
access to their joint venture data.

The latest development comes after Western Digital asked a U.S.
court to block the deal and is also seeking arbitration with an
international court on the grounds that the sale of the chip unit
without its consent would breach their joint venture contract.

Western Digital has invested in and jointly operates a flash
memory plant with Toshiba in Mie Prefecture, central Japan.

The Japanese company said Wednesday that it will spend 180
billion yen to set up production facilities for a new chip plant
currently being built on the site of the Mie plant. The two
production partners are in talks on whether they will share the
outlay.

Toshiba, reeling from massive losses stemming from the
bankruptcy of its former U.S. subsidiary, hopes to sell Toshiba
Memory for 2 trillion yen, enough to eliminate its negative net worth
and allow it to avoid being delisted from the Tokyo bourse.

Last week, Toshiba said it has chosen as its preferred bidder
for the unit a consortium consisting of the state-backed Innovation
Network Corp. of Japan, the state-owned Development Bank of Japan,
U.S. investment fund Bain Capital, and chipmaker SK Hynix Inc. of
South Korea.

In an effort to counter the move, Western Digital said Monday it
has resubmitted a last-ditch bid for the chip unit with U.S.
investment fund Kohlberg Kravis Roberts.

Meanwhile, Japan Post Bank Co. is also considering making a
roughly 50 to 60 billion yen investment in Toshiba Memory by buying
preferred shares, informed sources said Wednesday.

With Japan Post Bank's investment, the consortium could add more
to its 2 trillion yen offer which is relatively small compared to
other rival bids.

At a press conference, Japan Post Holdings Co. President
Masatsugu Nagato said he cannot comment on specific plans. But he
said it is "possible to join (the bidding) by buying preferred
shares, and generally speaking there is no barrier" to his
organization's participation. Japan Post Holdings is the parent
company of Japan Post Bank.

Toshiba was aiming to conclude a deal with the Japan-U.S.-South
Korean consortium by Wednesday when it held its shareholders meeting.
But it announced the same day that it needed more time to reach an
agreement.

Toshiba President Satoshi Tsunakawa said at the shareholders
meeting that final details still needed to be settled with the
entities in the consortium before any closures were made.

"We are aiming to seal the deal as soon as possible...and hope
to close it within fiscal 2017," said Tsunakawa.

At the annual shareholders meeting held in Chiba, east of Tokyo,
the company faced severe criticism from individual investors over its
worst-ever financial crisis and the upcoming demotion of its shares
to the Second Section on the Tokyo Stock Exchange in August.

Tsunakawa apologized about the company's delayed earnings
reports as well as the demotion of its shares on the TSE as of Aug.
1. "I apologize for repeatedly causing so much inconvenience and
worry."

Last Friday, regulators gave approval to the Japanese
electronics maker to extend a deadline for submitting its annual
financial statement to Aug. 10, as it has yet to gain auditor
approval. The TSE on the same day announced Toshiba's demotion as it
became certain the Japanese conglomerate's liabilities had exceeded
its assets in the year ended in March.

Meanwhile, Tsunakawa slammed Western Digital's legal action,
saying that the U.S. firm was "unreasonably meddling with the chip
unit sale process."

Although the reappointment of nine Toshiba executives to the
board of directors was approved at the end of the shareholders
meeting, many investors lashed out at the current Toshiba management.

"Please treat this as a crisis. You say you are, but it does not
look like it," a shareholder said, adding that the number of
executives should be reduced. "Such visible contrition will show
Toshiba's (seriousness) to its workers, shareholders and society."

Another shareholder suggested a turnaround could be achieved
through a bankruptcy filing. Tsunakawa said he could not comment on
that hypothesis but added the company will "make all efforts to avoid
such a situation."

Shareholders were also upset about the absence of former
Chairman Shigenori Shiga who has not made a public appearance since
he abruptly stepped down from the position in February to take
responsibility for the financial crisis.

"Are Toshiba executives a group of buddies?" the shareholder
asked. "I would really like to hear what Mr. Shiga has to say."
(June 28)


A shareholder leaves Toshiba Corp.'s shareholders' meeting in Chiba, near Tokyo, on June 28, 2017. Toshiba said the same day it has filed a damages suit against Western Digital Corp, seeking 120 billion yen ($1.06 billion) in compensation for blocking its planned chip unit sale.