Apple joins consortium in revised £14bn bid for Toshiba's chip business

Successful bid with Bain Capital may help iPhone maker source memory chips for smartphones in battle with rival Samsung

Apple has joined a consortium of businesses led by the investment company Bain Capital in a last-ditch £14bn offer for Toshiba’s chip unit.

Toshiba is the world’s second-largest producer of Nand memory chips, which are used in smartphones and computers. A deal may be crucial for Apple in keeping down prices of components for its iPhone, as well as reducing dependence on the market leader, Samsung.

According to reports by Reuters, Apple has been brought in to help bolster the bid as Toshiba and the hard drive manufacturer Western Digital struggle to strike a deal, despite partnering on the joint venture chip business.

Frank Gillett, an analyst at the market research company Forrester, said: “Apple is so big they need to multisource.” Apple had to ensure there were as many chip suppliers as possible in the market to keep prices competitive, he added.

A successful Toshiba bid could also provide an important source of chips for Apple, reducing its dependence on Samsung, the smartphone maker’s chief rival. Samsung produces some of the company’s A series processors alongside chips for the iPhone, iPad and other devices.

Alternatively, a combined Toshiba and Western Digital business could be almost as large as Samsung’s memory unit, giving it more negotiating leverage against Apple.

Toshiba has been scrambling to sell its flash memory unit to cover billions of dollars in losses at its bankrupt US nuclear business, Westinghouse. Toshiba’s relationship with US-based Western Digital has been rocky throughout the auction process, to the point that other bidders were favoured first. Western Digital has also initiated legal action that threatens to derail any deal that does not have its consent.

The revised offer from Apple, Bain and others is worth 2tn yen (£14bn). Bain and the South Korean chipmaker SK Hynix will be responsible for 1.1tn yen, while Apple will provide up to 400bn yenand Japanese banks about 600bn yen in support. The proposal also calls for Toshiba to be part of the deal, investing 200bn yen, according to Reuters.

A Bain-led group had previously been chosen by Toshiba as its preferred bidder. But those talks lapsed as Japanese government investors who had been part of the consortium told Toshiba they were reluctant to close a deal in the face of the legal risks posed by Western Digital’s demands.

Bain’s new offer is designed to negate that problem, inviting the state-backed investors Innovation Network Corporation of Japan and Development Bank of Japan to invest in the business only after any arbitration with Western Digital is settled.

The bid surpasses the 1.9tn yen offered by the Western Digital-led consortium, which also includes the US private equity company KKR & Co. However, banking sources have previously said Western Digital was working to get its proposal up to 2tn yen.

Bain’s revised bid was first reported by Japanese broadcaster NHK, which said it would be structured so it and Toshiba would each hold 46% of the unit.

Toshiba wants to reach a deal soon and it is not clear whether it will give serious consideration to Bain’s proposal, but it missed a self-imposed deadline of Thursday for a deal with Western Digital.


Samuel Gibbs

The GuardianTramp

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