SK Hynix Participates in a Second Bidding to Take over Toshiba Memory

SK Hynix is participating in a second bidding to take over Japan’s Toshiba Memory. As many alliances or independent companies from many countries such as South Korea, Japan, U.S., and Taiwan are jumping into this bidding, it is likely that this battle will develop into a complicated structure.

SK Hynix is participating in a second bidding to take over Toshiba Memory. Although issues such as amount of bidding is not clearly known, it is understood that SK Hynix is participating in this bidding with an American private equity fund called Bain Capital based on outside sources.

Japan’s Nihon Geizai Shimbun reported that Bain Capital proposed an acquisition based on MBO (Management Buy Out) where management teams from Toshiba and Toshiba Memory can participate. When this proposal is accepted, Bain Capital will then set up SPC (Special Purpose Company) and obtain more than 51% of Toshiba Memory’s shares while SK Hynix will provide fund to establish SPC. Rest of Toshiba Memory’s shares will be possessed by Toshiba and Bain Capital’s plan is to form an alliance between South Korea, U.S., and Japan. In order to form this alliance, Bain Capital is also thinking about investing into a Japanese public and private fund called INCJ (Innovation Network Corporation of Japan) that receives support from Japanese Government.

SK Hynix is expecting two huge positive effects when this plan is carried out. First of all, there is a low chance that SK Hynix will be caught up with monopolistic prohibition laws from countries during an acquisition since it is not participating in a front line. Also it will be able to receive support from Japanese Government and public opinion when it forms a tie with INCJ.

It is heard that amount of acquisition that is presented by Bain Capital and SK Hynix is about $8.99 billion (1 trillion Yen) and this does not meet the amount that Toshiba wants ($18.0 billion). However Bain Capital emphasized that Toshiba Memory’s competitive edge can continue to expand when it partners up with SK Hynix and this is a very appealing proposal to Toshiba’s creditors.

Predictions regarding other potential buyers are different from each other. Nihon Geizai Shimbun reported that another American private equity fund called KKR (Kohlberg Kravis Roberts) proposed similar investment to INCJ but is facing difficulties as its proposal does not meet many conditions. However Bloomberg reported that INCJ answered to KKR’s proposal on the 19th. Whether this report is true or not has yet to be confirmed. Bloomberg also reported that Broadcom is also participating in a bidding.

Future plans of Western Digital, which is co-operating NAND flash-memory production facilities with Toshiba, are acting as a huge variable. Western Digital said that it is unacceptable for Toshiba to carry out sales process of Toshiba Memory without asking Western Digital and requested an arbitration from ICC’s (International Chamber of Commerce) international arbitration court. Usually it takes about a year and 6 months until an arbitration is done. If Toshiba waits until an arbitration is finished, sales of Toshiba Memory will not be done by March of 2018 when it is hoping to finish the sales by.

The Asahi Shimbun reported that Toshiba and Western Digital might discuss again shortly in order to avoid worst case scenario as Western Digital can also receive huge impact on its business if Toshiba Headquarters does not have healthy financial affairs. Considering this circumstance, Bain Capital is also looking into discussing with Western Digital. Some believe that a huge alliance where Bain Capital, SK Hynix, KKR, INCJ, and Western Digital are all making investments can take place. This prediction is based on a principle that they will look to share Toshiba Memory’s stocks if they cannot take them all for themselves.

“Toshiba is planning to postpone the deadline if there are no conditions that it is satisfied with.” said Nihon Geizai Shimbun. Sankei Shimbun reported that Toshiba is planning to reduce number of participating bidders to two from this second bidding and is looking to carrying out a third bidding in June.

“Because positions from persons concerned are all different, this bidding process is becoming a very complicated one.” said a representative for a South Korean industry. “Biggest variable will be on where INCJ is going to provide support with Japanese Government’s willingness in the back.”

Staff Reporter Han, Juyeop | [email protected]