Toshiba sues Western Digital over TMC spin-off deal

June 28, 2017 | 06:05

Tags: #deal #finance #financial #tmc

Companies: #japan #sandisk #toshiba #toshiba-memory-corporation #western-digital

Toshiba has announced that it is launching legal action against joint venture partner Western Digital, following the company's attempts to block the sale of a portion of spin-off Toshiba Memory Corporation.

Rumours suggesting Toshiba would be looking to sell off its semiconductor division surfaced earlier this year with Western Digital tipped as the front-runner for the acquisition owing to the company's existing joint venture relationship via subsidiary SanDisk. In late January Toshiba confirmed the plans, spinning off all but its image sensor division into a separate company dubbed Toshiba Memory Corporation and seeking a cash injection from outside investors in exchange for a 20 percent share of the resulting company. Western Digital, however, soon found itself in stiff competition with SK Hynix, Micron and others, and in May announced that it would seek to block any such sale under the terms of the Toshiba-SanDisk joint venture.

When Toshiba announced it had picked the winning bidder, a triumvirate formed of the Innovation Network Corporation of Japan, Bain Capital Private Equity LP, and the Development Bank of Japan, Western Digital officially spat out its dummy: 'Toshiba Corporation continues to ignore both SanDisk's consent rights and the dual-track legal process currently underway. The language of the relevant agreements is clear: Toshiba Corporation has no right to transfer its JV interests to a third party without SanDisk's consent,' the company announced. 'SanDisk has not given its consent to any transaction, and will continue to protect its JV interests and preserve its rights through both its request for injunctive relief and the arbitration process.'

Now, Toshiba itself has made its displeasure with Western Digital unclear with the launch of a suit alleging the company's attempt to block the deal is in violation of the Unfair Competition Prevention Act. According to Toshiba's announcement, the suit alleges that Western Digital has 'exaggerated its consent right - in both public statements and private communications to bidders and others involved in the sale process - in order to interfere with the sale of TMC which does not hold the ownership interests in joint venture companies co-owned with SanDisk' and claims that 'proceeding with the sales process for TMC does not violate any consent rights held by WD; WD's claims are false, designed only to interfere with the sale process, and have damaged Toshiba and TMC.'

The suit seeks an injunction which would prevent Western Digital from interfering in the sale, damages relating to the company's public claims, and a 120 billion Yen (around £832 million) payment for its actions. Thus far, Western Digital has not publicly responded to the filing.

UPDATE 20170629:

Western Digital has issued the following statement in response to Toshiba's filing, reasserting its rights to block the sale of Toshiba Memory Corporation and claiming Toshiba has been actively preventing its employees from accessing data at the Toshiba-SanDisk joint venture.

'Western Digital is strongly focused on the success of the JVs, and over the past 17 years has made substantial investments to support and grow this world-class venture. We remain committed to upholding all of our commitments and obligations as a partner in the JVs, including the vigorous protection of trade secrets. Any claims by Toshiba to the contrary are frivolous and without merit. We also note that operations at the JVs are ongoing and SanDisk continues to be entitled to its 50 percent share of the JVs’ output.

'Toshiba took an unprecedented and retaliatory action to prohibit certain employees from accessing shared databases and, in some instances, the JVs’ facilities themselves. This action will have the consequence of harming not only Toshiba’s stakeholders, but also our respective customers.

'Western Digital has not received any legal filings and therefore is unable to comment on the specific claims made by Toshiba in Tokyo District Court. However, the process to resolve disputes is clear: under the JV contracts, disputes are required to be resolved through arbitration with the ICC International Court of Arbitration. The arbitration proceedings are ongoing, and SanDisk’s filing for preliminary injunctive relief in the Superior Court of California for the County of San Francisco seeks to ensure that the ICC International Court of Arbitration will be given an appropriate opportunity to resolve the disputes.

'We believe the actions taken by Toshiba are continued attempts to both pressure Western Digital to relinquish its previously agreed upon and legitimate consent rights, and to distract Toshiba’s stakeholders following its annual general meeting. It is surprising that Toshiba would take such actions given the implications for its employees, customers, shareholders and creditors.'

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