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September 13, 2017
martinwolf  Transaction Analysis
Toshiba Memory Enters Memorandum of Understanding with Bain Capital

Financial Information
  • Terms Not Disclosed
Transaction Facts
  • In light of private equity firm Bain's new proposal, Toshiba announced today that it has entered into a non-binding MoU with Bain for the sale of its chip unit Toshiba Memory Corporation (TMC). Both parties intend to negotiate a mutually satisfactory definitive agreement for the sale of TMC, which is speculated to be at ~$20B, by the end of September.
  • Toshiba failed to meet its self-imposed deadline to find a buyer for TMC on August 31. If Toshiba does not secure new capital by March 2018, it could have its shares delisted from the Tokyo Stock Exchange.
Continuing the High-Stakes Bidding War
  • Costly Trade-OffToshiba announced plans in March to sell up to 100% of its highly valuable chip business in order to offset a $6.3B write-down from its majority-owned nuclear reactor unit, Westinghouse Electric Co. -- Westinghouse filed for bankruptcy in the U.S in on March 29. From the outset, Toshiba and the Japanese government made clear their preference for a domestic buyer.
  • More Competition: While the company favors Bain, Toshiba has stated its right to welcome new offers and negotiate with other bidders. The three major bidding groups that have come forward are: a consortium led by Bain that includes Apple, Seagate Technologies, SK Hynix, Innovation Network Corp. of Japan, and Development Bank of Japan; a consortium led by Western Digital; and a consortium led by Foxconn.
  • Change of Tide:  Just up until two weeks ago, Western Digital had been in the front running, amidst expansion of its cloud capabilities with two smaller acquisitions. After the announcement of Toshiba's MoU with Bain, Western Digital stated, "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." The combination of Western Digital and Toshiba could create a market share of over 30% in the growing NAND flash memory market, which hit $36.7B last year and will grow 40% until 2021, Samsung Electronics is the leader of the pack; Samsung's market share stands at 36.7%, whereas Toshiba's market share fell 4.5 percentage points to 17.2% and Western Digital's fell 0.5 percentage points to 15.5% in the first quarter of this year. 
  • Not Just About Numbers: Toshiba is considering more than just selling to the highest bidder. Earlier in April, Taiwan-based Foxconn, the world's largest contract electronics maker and supplier for Apple, submitted the highest bid at ~$27B, but Toshiba is favoring Bain at this point in time. Foxconn stated that it has not yet given up, as it proactively has been looking to move past being merely a manufacturer. Foxconn has been eyeing companies with higher margins, taking control of 100-year-old Japanese electronics company Sharp Corp. last August, when it bought two-thirds of the company for $3B. 
For more information about this development,  click here to read the press release.

martinwolf was not the advisor in this transaction.

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With offices in the San Francisco Bay Area and New York, martinwolf is a leading M&A Advisory focused on middle market companies in the IT Services, IT Supply Chain, IT-Enabled Business Process Outsourcing and Software as a Service (SaaS) space. Since 1997, our team has completed more than 150 transactions in over 20 countries and sold seven divisions of Fortune 500 companies. 

 

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