Bain-led Toshiba carve-out approved by Chinese regulators

It is set to be the largest private equity-backed transaction ever seen in Asia by enterprise value. Given the deal was announced in 2017, TMC was a significant contributor as PE investment in the region reached $210.7 billion for the year, a 41% increase on the previous record high set in 2015.

The consortium – which also includes Innovation Network Corporation of Japan (INCJ) and Development Bank of Japan (DBJ), along with strategic investors such as Apple, Dell Kingston, Seagate, and SK Hynix – was named the preferred bidder for the asset last June. The sale of the flash memory business was prompted by Toshiba’s deteriorating financial position after its Westinghouse nuclear power unit filed for bankruptcy in early 2017.

Initial resistance to the deal came from Western Digital, which operates a Nand flash manufacturing plant as a joint venture with Toshiba through its SanDisk division. The company claimed the JV agreement gave it veto power over any sale of TMC. The company submitted its own bid for TMC in partnership with KKR and took legal action to try and block the deal with the Bain consortium. The legal challenge was dropped in December.

Toshiba shareholders approved the transaction in October, but the process was further complicated by China’s prolonged review. China is the largest global consumer of memory chips and its antitrust authorities were reportedly concerned that the deal could result in SK Hynix, which is also a major player in the Nand flash space, having a significant stake in TMC. There were further reports – denied by Toshiba – that the sale might be abandoned and TMC would be spun out into a public listing instead.

“All antitrust approvals have now been received and we are looking forward to closing this investment. We are making this important investment because we see the opportunity to further grow Toshiba Memory Corporation. This transaction will help ensure a competitive global semiconductor market and protect the supply chain from potential disruption,” Bain said in a statement.

The sale of such a prized asset to a consortium including foreign investors was always sensitive. However, Toshiba will invest JPY350.5 billion in the acquisition vehicle and hold 40.2% of TMC while Hoya Corporation, another Japanese technology player, will have 9.9%, SK Hynix previously disclosed. SK Hynix itself is investing JPY266 billion through a dedicated fund established by Bain and will subscribe to JPY129 billion in convertible bonds, which could allow it to own up to 15% of TMC in the future.

Toshiba said in a separate statement that it expected the transaction to close by June 1. The company was previously under pressure to meet a March deadline: The TMC sale was set to drive a JPY1 trillion improvement in consolidated pre-tax income for the 2017 financial year, with JPY740 billion required to end Toshiba’s status of negative shareholder equity. In the end, this was achieved through the sale of other assets and a capital increase.

Toshiba posted revised net sales of JPY3.95 trillion in 2017, down from JPY4.04 trillion the previous year, while moving from a net loss of JPY956.7 billion to a net profit of JPY804 billion. As of March 2018, shareholder equity was JPY783.1 billion, having been negative a year earlier, and debt had fallen from JPY682.9 billion to JPY191.6 billion.

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• Topics
• North Asia
• Buyouts
• Technology
• Japan
• Bain Capital Asia
• Innovation Network Corp. of Japan (INCJ)
• The Development Bank of Japan (DBJ)