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Toshiba to sell chip unit to Japan-U.S.-S. Korea group for $21 bil.

Toshiba Corp. said Wednesday it will sell its chip unit to a
Japan-U.S.-South Korean consortium for 2.4 trillion yen ($21.5
billion), rejecting a counterbid from its longtime partner Western
Digital Corp.

The Japanese technology conglomerate is seeking to sign a deal
within days to sell Toshiba Memory Corp. to the consortium led by
U.S. investment fund Bain Capital. In addition to paying 2 trillion
yen to buy the chipmaker, the consortium will also provide about 400
billion yen in business investment, Toshiba said.

Optical glass maker Hoya Corp. will also join the group while
Toshiba will reinvest 350.5 billion yen after selling the unit,
sources close to the matter said. Toshiba and Hoya will together hold
a majority of voting rights in Toshiba Memory.

The consortium also includes the state-backed Innovation Network
Corp. of Japan, the Development Bank of Japan, South Korean chipmaker
SK Hynix Inc. and four U.S. technology firms -- Apple Inc., Dell
Inc., memory product maker Kingston Technology Corp. and data storage
company Seagate Technology Plc.

The four U.S. firms will obtain preferred shares in Toshiba
Memory that do not carry voting rights while main creditor banks plan
to provide loans, Toshiba said.

"We have picked the consortium in order to pursue the
possibility of selling the chip business by the end of next March and
fix our finances," Toshiba said in a statement.

Toshiba is selling Toshiba Memory to cover huge losses incurred
by its now-bankrupt U.S. nuclear unit by next March and thereby avoid
reporting a negative net worth for a second straight year, which
could lead to its delisting from the Tokyo Stock Exchange.

The decision by the Toshiba board comes after it also considered
a revised offer made at the last minute by a group led by Western
Digital, the joint owner of Toshiba's Yokkaichi flash memory plant.

While some board members had apparently expressed support for
Western Digital's proposal, it was eventually rejected as many in the
company could not overcome their distrust of the U.S. corporation
following a legal dispute between the two companies over the sale of
the chip unit, the sources said.

Ties between the two companies had soured after Western Digital
took Toshiba to court claiming that the unit's sale without its
consent would breach their joint venture contract.

"We are disappointed that Toshiba would take this action despite
Western Digital's tireless efforts to reach a resolution that is in
the best interests of all stakeholders," Western Digital said in a

"Furthermore, it is troubling that Toshiba would pursue this
transaction without SanDisk's consent," it added. SanDisk Corp. is
Western Digital's chip unit.

Toshiba has agreed with the Japan-U.S.-South Korean consortium
to proceed with the chip unit sale even if the process is blocked in
a legal case with Western Digital, according to the statement.

The main focus of talks between Toshiba and the Japan-U.S.-South
Korean group had been how to handle the legal challenges posed by
Western Digital.

In its offer, the group said that Bain Capital and SK Hynix
would shoulder costs to settle the legal dispute with Western
Digital, the sources said.

The consortium and Toshiba also agreed to keep the ratio of SK
Hynix's voting rights low in the chip unit in the future in order to
avoid antitrust issues.

The group also made a proposal that the INCJ and DBJ would
invest in Toshiba Memory once the legal dispute is resolved, while
Bain Capital and others in the group would pay for the investment by
the two Japanese entities.

But Toshiba still needs to figure out ways to quickly reach a
settlement with Western Digital as the sale could still be blocked if
the legal spat continues.

In its last-minute offer, the Western Digital group said it will
give up seeking voting rights in the chip unit after initially
demanding more than one-third of the rights to gain veto power, the
sources said.

Wednesday's decision by Toshiba could end months of confusion
and speculation among investors and other stakeholders.

The crisis-hit company initially picked the Japan-U.S.-South
Korea consortium as a preferred bidder, and aimed to clinch a deal
with it by the end of June. But after their talks stalled, Toshiba
turned to Western Digital.

At one point, Toshiba and Western Digital even reached a broad
accord. However, their negotiations soon hit a snag as the U.S.
company started seeking voting rights at the chip unit, prompting
Toshiba again to focus on negotiations with the consortium and sign a
memorandum of understanding with it. (Sept. 21)