Toshiba Deal Faces More Uncertainty As Financing Talks Stall

Toshiba’s deal with Lenovo has become a little more uncertain lately, as financing talks are stalling. There are a lot of issues that are complicating the situation. The most significant is the fact that some shareholders of the company are angry that they have lost money. These include Kioxia Holdings Corp. and JIP Capital. Other concerns involve Western Digital and Activist Shareholders.

Western Digital

If you’ve been following the saga of Western Digital and Kioxia Holdings, then you’ve been waiting on the next step. A deal has been planned for months, but the Japanese government’s approval is still a major hurdle.

The combination of Kioxia and Western Digital could transform the global memory market. But it faces many obstacles.

For starters, there’s the potential for government watchdogs to challenge the upcoming deal. Moreover, both parties have competing national interests to consider.

Meanwhile, a key issue is whether or not Western Digital is ready to give up its claim to the first bidder. That’s not impossible.

WDC has a solid case to defend itself. As a matter of fact, Harold Kahn ruled in favor of WDC before. He’s likely to do the same again.

However, the question remains as to how Western Digital will finance the $20 billion transaction. Will it be with stock or cash? And who will own its joint ventures?

JIP

A group of Japanese tycoons has the audacious task of buying out Toshiba, a behemoth of a company whose illustrious past includes the construction of nuclear power plants. The consortium, led by Bain Capital, has been on a mission since last year to restore the beleaguered conglomerate’s luster. They have not had the best of luck so far.

One of the biggest obstacles to getting a deal done is financing, especially if the target is a large cap company like Toshiba, with a market cap of some 2.4 trillion yen. The most likely solution is a combination of debt and equity. This nebulous concoction has already caused several snags in the shuffle.

In the grand scheme of things, there are several reasons to not put your bets on the aforementioned JIP conglomerate, but the most pertinent of these is a lack of a credible mate in the form of a plethora of high-quality credit providers. These include Sumitomo Mitsui Banking Corp, Mizuho Financial Group and Aozora Bank Ltd.

Activist shareholders

It is not unusual for Japanese companies to face pressures from shareholders. Toshiba’s recent history is an example of how these tensions can lead to serious business problems.

The company’s troubles started with its search for new business lines. In the past seven years, its executives set unattainable profit goals for several business divisions. As a result, the company overstated its profits by $1.2 billion, a figure that was later admitted by management.

In response, Toshiba launched a strategic review last year. This led to the appointment of two board directors, from hedge fund investors, who are expected to add momentum to the exploration of potential buyout deals. However, these discussions came to a halt when the management backed plan to split the company into two was rejected.

During the five-month strategic review, Toshiba held discussions with private equity firms. However, the bids for the company were not compelling. Among other concerns, they raised questions about staff retention.

Kioxia Holdings Corp

Toshiba, the Japanese industrial giant that is being bid for private by a group led by JIP Holdings, is facing more uncertainty as financing talks have stalled. The company is trying to get back on track after years of scandals and a weakening of confidence among banks in its management. It is expected to sell to the group for 2.2 trillion yen. In addition to the cash that the group is seeking, it is also looking to raise 1.4 trillion yen from banks and 200 billion yen from working capital. However, rising financing costs have also thrown up roadblocks to the deal.

Another complication has been the ongoing merger between Western Digital and Kioxia Holdings. This was originally scheduled to go through in late summer, but the deal has been slowed due to uncertainty over the approval of the deal by the Japanese government.