TOKYO (Reuters) - Western Digital Corp (WDC.O) has sought international arbitration to stop partner Toshiba Corp (6502.T) from selling its chips arm without its consent, potentially derailing a much-needed capital injection for the Japanese conglomerate.

The two companies jointly operate Toshiba’s main semiconductor plant but Western Digital is not a favored bidder for the world’s second biggest NAND chip producer, having put in a much lower offer than other suitors, a source with knowledge of the matter has said.

A legal battle could delay or put an end to an auction that could fetch some $18 billion and has attracted suitors such as private equity firm KKR & Co LP (KKR.N), Taiwan’s Foxconn (2317.TW) and U.S. chipmaker Broadcom (AVGO.O).

Toshiba is depending on the sale to cover billions in dollars in cost overruns at its now bankrupt U.S. nuclear unit Westinghouse. The Japanese firm logged a 950 billion yen ($8.4 billion) annual net loss and had negative shareholder equity of 540 billion yen, it said in an unaudited earnings release on Monday.

After months of souring relations, Western Digital has begun arbitration procedures with the International Chamber of Commerce, demanding Toshiba reverse a move to put their joint venture assets into a newly formed unit - Toshiba Memory - and stop any sale without Western Digital’ s consent.

Western Digital’s “efforts to achieve a resolution to date have been unsuccessful, and so we believe legal action is now a necessary next step,” CEO Steve Milligan said in a statement.

Toshiba CEO Satoshi Tsunakawa told a news conference the complaint was groundless and that Toshiba would push on with the sale, sticking to its plan to complete the second round of bidding on Friday.

“We will make efforts to convince bidders of the legitimacy of the chip-unit sale and wipe away their concerns,” he said.

Toshiba argues neither party can block a change of control by the other partner. It says Western Digital itself acquired the joint venture interest when it bought current unit SanDisk, and never sought or received Toshiba’s approval.

FILE PHOTO: A Western Digital office building under construction is shown in Irvine, California, U.S., January 24, 2017. REUTERS/Mike Blake/File Photo

But Western Digital counters that the contract only allows Toshiba not to seek approval if the Japanese company is acquired by a third party.

LISTING, FINANCING AT STAKE

The escalating dispute could also further jeopardize Toshiba’s Tokyo bourse listing as fresh funds are urgently needed to shore up its balance sheet, as well as upend financing plans. Toshiba hopes to offer a stake in the chip unit as collateral for new loans from major lenders, a measure that the banks say also requires Western Digital’s approval.

Toshiba believes that a consortium made up of KKR and Japanese government-backed investors would be the most feasible buyer for the business, sources with direct knowledge said last week.

The Japanese government has proposed that Western Digital join their consortium as a minority investor, but the California-based firm has said it needs to take control of the unit in order to be fully in charge of operations, separate sources have said.

Toshiba’s Tsunakawa said the company would make a decision on Tuesday whether to proceed with a threat it made this month to block Western Digital employees from the plant as well as databases if the U.S. company did not sign a broad collaboration agreement that the two had negotiated.

Toshiba has said any move would not affect joint venture operations because it does not apply to SanDisk employees.

Despite the fresh setback, Toshiba shares climbed 3.4 percent, buoyed by news that progress is being made toward capping some of its nuclear liabilities in the United States - another major headache.

The owners of the unfinished Vogtle power plant in Georgia led by Southern Co (SO.N) have to come to a preliminary agreement to cap Toshiba’s responsibility for its guarantees on the project at about $3.6 billion, people familiar with the matter said on Sunday.

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“The stock seems to be rallying on the perception it will avoid delisting which is a risky assumption to make,” said CLSA analyst Claudio Aritomi.

All of Toshiba’s bonds are trading below par, including 30 billion yen in debt maturing on July 26. The cost of insuring against default on Toshiba’s five-year yen debt in the market for credit default swaps TOSB5YJPAC=MG was indicated 8 basis points higher at 388/418 basis points.

($1 = 113.3 yen)</s>Western Digital Corp. has sought international arbitration to stop partner Toshiba Corp. from selling its chips arm without its consent, potentially derailing a much-needed capital injection for the Japanese conglomerate.

California-based Western Digital is a long-standing joint venture partner and runs Toshiba’s main semiconductor plant in Japan. It has sought to bid for the Toshiba chips business, but is not seen as the front-runner, given its bid has been trumped by Taiwan’s Foxconn and U.S. chipmaker Broadcom Ltd , a source familiar with the matter has said.

In the early hours of Monday, Western Digital said it had initiated arbitration procedures with the International Chamber of Commerce International Court of Arbitration, demanding Toshiba reverse a move to put its joint venture assets into a hived out entity – Toshiba Memory – and that it stop an all-out sale without consent from Western Digital unit SanDisk.

Toshiba argues that under their joint venture contract, neither party can block a change of control by the other partner. It argues Western Digital itself acquired the joint venture interest when it bought SanDisk, and never sought or received Toshiba’s approval.

Western Digital, however, claims that Toshiba’s move breaches their contract.

“Toshiba’s attempt to spin out its joint venture interests into an affiliate and then sell that affiliate is explicitly prohibited without SanDisk’s consent,” Western Digital chief executive officer Steve Milligan said in a statement.

“Seeking relief through mandatory arbitration was not our first choice in trying to resolve this matter. However, all of our other efforts to achieve a resolution to date have been unsuccessful, and so we believe legal action is now a necessary next step.”

Toshiba, battered by billions of dollars in cost overruns at its now bankrupt U.S. nuclear business, is desperately trying to accelerate the sale of its semiconductor business – the world’s second biggest NAND flash memory chip producer.

An arbitration process could drag out for months or longer, putting Toshiba’s presence on the Tokyo Stock Exchange in jeopardy, as it needs cash from the chip unit sale to bulk up its shareholder equity and stay listed.

The dispute could also derail Toshiba’s financing plans, as it hopes to offer the stake in its memory chip unit as collateral for new loans from major lenders, a measure that the lenders say also requires Western Digital’s approval.

Toshiba, which values the unit at least 2 trillion yen, believes that a consortium of U.S. private equity firm KKR & Co LP and Japanese government-backed investors would be the most feasible buyer for the chips business, sources with direct knowledge said last week.

The Japanese government has proposed that Western Digital join their consortium as a minority investor, but the U.S. company has said it needs to take control of the unit in order to be fully in charge of operations, separate sources have said.</s>Troubled conglomerate Toshiba Corp. on Monday said it will delay reporting its annual earnings for the recently ended fiscal year, but warned that it will likely book a net loss of ¥950 billion.

The delay comes after it twice postponed its nine-month earnings before releasing unaudited results last month, stirring fears that its shares could be delisted from the Tokyo Stock Exchange

Meanwhile, its U.S. partner, California-based Western Digital Corp., is taking legal action to try to guarantee a say in who gets to buy the chip unit of Toshiba, its partner in a manufacturing joint venture. The company will invoke an arbitration clause in their business agreement, which could postpone a sale Toshiba needs to complete quickly.

As Toshiba looks to sell the semiconductor business, the technology giant transferred ownership of the unit to a separate legal entity but didn’t get permission before doing so, according to Western Digital. The two should enter binding arbitration to resolve the dispute, Western Digital said.

The companies are increasingly at odds as Toshiba tries to raise cash needed to keep itself afloat following a disastrous investment in nuclear power. The joint venture may find itself at risk if Toshiba’s chip-making operation is snapped up by a Western Digital competitor.

Western Digital executives have described Toshiba’s situation as “desperate.”

“We firmly believe that we provide Toshiba with the optimal solution to address its challenges and that we are the best partner to advance its legacy of technology innovation in Japan,” Western Digital Chief Executive Officer Steve Milligan said in a statement. “Toshiba’s attempt to spin out its joint venture interests into an affiliate and then sell that affiliate is explicitly prohibited without SanDisk’s consent.”

Toshiba previously told Western Digital not to interfere in the sale plans and that it may resort to legal action. It has also threatened to lock out Western Digital staff from manufacturing facilities in Japan.

Arbitration will take place in San Francisco, Western Digital said. Each side will propose one member of the three-person panel. The third, who will serve as chairman, will be chosen by either the two other members or the International Chamber of Commerce, which will oversee the arbitration. The process can take as long as a year. Any move that undermines arbitration, such as a sale of the unit before the panel reaches a decision, could allow the issue to go to court.

The type of chip produced by the joint venture, known as flash memory, is enjoying a bumper year.

Micron Technology Inc., Samsung Electronics Co. and SK Hynix Inc. have all reported strong demand for the product as the industry moves away from magnetic disks in computer storage.

Toshiba’s sale has garnered significant interest, with bids as high as $27 billion from Hon Hai Precision Industry Co., Bloomberg reported last month. Other bidders include SK Hynix and Broadcom Ltd.

Mark Long, chief financial officer of Western Digital, said this month that “each of the rumored bidders is problematic.” The company has talked to all of the prospective buyers in a bid to find a solution.

Western Digital has held discussions with Innovation Network Corp. and Development Bank of Japan Inc. about options for making a bid of its own. It hopes to secure exclusivity with Toshiba and has argued that a sale to a third party is in breach of their joint-venture agreement — a claim that the Japanese side disputes.

Toshiba is selling assets to contend with writedowns in its Westinghouse nuclear business, stemming from excessive costs and construction delays.

Toshiba put Westinghouse into Chapter 11 bankruptcy protection and said it may take a loss of as much as ¥1.01 trillion ($8.9 billion) for the year that ended in March.</s>Western Digital Corp. on Sunday ratcheted up the pressure in its dispute with Toshiba Corp., filing a request for binding arbitration to prevent the troubled Japanese company from selling its stake in operations jointly owned by the two companies.

In its arbitration request, Western Digital WDC, -0.03% claims Toshiba 6502, +4.23% breached its contract by transferring its interest in the flash-memory joint ventures to an affiliated company without Western Digital’s consent.

The request is the latest spat between Western Digital and Toshiba, which is trying to sell its profitable memory-chip business in an effort to bolster its ailing finances. Western Digital, which jointly owns a flash-memory semiconductor plant in Japan with Toshiba, has said the Japanese company promised not to sell its stake without Western Digital’s approval.

Toshiba has accused Western Digital of interfering with the chip-business sale and threatened to sue the California company unless it drops the breach-of-contract assertion.

An expanded version of this report appears on WSJ.com.

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Apple’s new headquarters is a sign of tech’s boom, bravado.</s>MILPITAS (dpa-AFX) - Western Digital Corp. (WDC) said that several of its SanDisk subsidiaries have filed a Request for Arbitration with the ICC International Court of Arbitration related to three NAND flash-memory joint ventures operated with Toshiba Corp.



The arbitration demand seeks an order requiring Toshiba to unwind the transfer to Toshiba Memory, and injunctive relief preventing Toshiba from further breaching the Flash JV agreements by transferring its Flash JV interests, or any interest in an affiliate that holds its Flash JV interests, without SanDisk's consent. Per the provisions of the joint venture agreements, the arbitration will take place in San Francisco, California.



On or around April 1, 2017, Toshiba purportedly transferred its joint venture interests to a subsidiary, Toshiba Memory, as part of an open auction to sell its joint venture interests to a third party, Western Digital said today.



Western Digital believes that these actions clearly violate the anti-transfer provisions of the joint venture agreements. Under the joint venture agreements, these transfers require SanDisk's consent. SanDisk did not consent to the transfer to Toshiba Memory, and Toshiba has now repudiated any intention to obtain SanDisk's consent before selling Toshiba Memory to the winning bidder of the auction.



Copyright RTT News/dpa-AFX</s>Western Digital is seeking arbitration, demanding that its consent has to be taken before Toshiba can go ahead with plans to sell a stake in its memory business to raise funds.

The storage technology company acquired SanDisk last year and has been rumored to be a bidder for a stake in the Toshiba memory business, which has reportedly attracted a large number of other bidders including Apple and Foxconn Technology.

SanDisk has been a long-term partner of Toshiba, with the two companies collaborating in the fabrication of nonvolatile memories, but is not seen as a front-runner in the auction.

On Sunday, Western Digital said that several of its SanDisk subsidiaries have filed for arbitration with the ICC International Court of Arbitration in connection with three NAND flash-memory joint ventures it operates with Toshiba.

“Toshiba’s attempt to spin out its joint venture interests into an affiliate and then sell that affiliate is explicitly prohibited without SanDisk’s consent,” said Western Digital’s CEO Steve Milligan in a statement, citing joint venture agreements SanDisk has with Toshiba.

The arbitration, which could be held in San Francisco in accordance with the agreements, will likely delay Toshiba’s plans to sell a majority part of its stake in its memory business.

“There is no fact constituting a breach of JV agreements and we believe WD has no ground to interfere with the process,” wrote a Toshiba spokesperson in an email, adding that the company has not received any notification of any arbitration process and cannot comment on it.

Toshiba is considering selling a stake in its memory unit to to raise funds for an impairment loss in its bankrupt U.S. nuclear plant unit.

It said earlier this year its was considering separating its memory business, including SSD but excluding image sensors, into a separate company called Toshiba Memory.

Western Digital is now asking the arbitration court for an order requiring Toshiba to roll back a transfer in April of its interests in the joint ventures to Toshiba Memory as it holds that the transfer requires the consent of SanDisk in line with existing agreements.

Western Digital also wants an injunction preventing Toshiba from further breaching its agreements with the SanDisk joint ventures by transferring its interests in the joint venture, or any interest in an affiliate that holds its flash joint venture interests, without SanDisk’s consent.</s>Toshiba Corp. is moving to block Western Digital Corp. employees from the flash-memory joint venture they share, after a threat of legal action by the US company loomed over the increasingly bitter dispute over who gets to buy the Japanese company’s chip unit. Western Digital invoked an arbitration clause in their business agreement, which could postpone a sale. Later on Monday, Toshiba will go forward with plans to shut out Western Digital’s workers from its flash memory facilities in Yokkaichi in central Japan as well as digital access to its networks, people familiar with the matter said.

The escalating standoff between the two companies over the chip sale could imperil Toshiba’s plans to use cash from the divestment to plug a hole in its balance sheet from a massive loss in its nuclear power business. The US disk drive maker fears the operations may fall into the hands of competitors, even though it probably doesn’t have the financial wherewithal to buy the unit itself. At the same time, Toshiba needs to sell the chips business soon to avoid posting negative shareholder equity for two straight years.

Also Read: Toshiba warns Western Digital to stop interfering in chip sale

“Toshiba’s memory business is very appealing and has attracted a lot of potential buyers,” said Hideki Yasuda, an analyst at Ace Research Institute. “But Western Digital, just coming out of a major acquisition itself, simply can’t afford it, and must make the most out of its position as a joint venture partner to get to an outcome more favorable to itself.” Earlier this month, Tokyo-based Toshiba said that Western Digital still hasn’t signed a revised contract after becoming its flash memory manufacturing partner through the acquisition of SanDisk Corp. last year — and that it must comply by end of day Monday. It’s not clear how many Western Digital employees would be affected; SanDisk workers would continue to have access.

In preparation for the divestment, the Japanese technology company transferred ownership of the memory unit to a separate legal entity but didn’t get permission before doing so, according to Western Digital. The two should enter binding arbitration to resolve the dispute, Western Digital said. “We firmly believe that we provide Toshiba with the optimal solution to address its challenges and that we are the best partner to advance its legacy of technology innovation in Japan,” Western Digital Chief Executive Officer Steve Milligan said in a statement. “Toshiba’s attempt to spin out its joint venture interests into an affiliate and then sell that affiliate is explicitly prohibited without SanDisk’s consent.”

Toshiba said it hasn’t received any notice of arbitration, and rejected claims that the process is in breach of the joint venture agreement. Toshiba said it will continue to handle the sale properly, and that Western Digital has “no grounds” to interfere with the process. Western Digital executives have described Toshiba’s situation as “desperate.”

Underscoring the need for Toshiba to secure a sale of the chip business, the company announced preliminary results for the year that ended in March showing a net loss of 950 billion yen ($8.4 billion). Shareholder equity was negative 540 billion yen for the year, and will be another 540 billion yen again in the current fiscal year unless a divestment happens, the company said. Toshiba is selling assets to contend with writedowns in its Westinghouse nuclear business, stemming from excessive costs and construction delays. The Japanese company put its Westinghouse Electric nuclear unit into Chapter 11 bankruptcy protection.

Separately, utility owner Southern Co. has agreed to take the lead from Toshiba’s bankrupt US nuclear power unit on building two reactors at its plant in Georgia as soon as next month. Toshiba’s stock rose as much as 5.7 percent in Tokyo on Monday. Toshiba previously told Western Digital not to interfere in the sale plans and that it may take legal action. It also said the US company failed to formalize their relationship after Western Digital became its-flash memory manufacturing partner after the acquisition of SanDisk Corp. last year. Toshiba said the two companies must come to an agreement by May 15 or it would bar Western Digital employees from its facilities and networks.

Also Read: Toshiba said to place temporary hold on memory chip business

Arbitration will take place in San Francisco, Western Digital said. Each side will propose one member of the three-person panel. The third, who will serve as chairman, will be chosen by either the two other members or the International Chamber of Commerce, which will oversee the arbitration. The process can take as long as a year. Any move that undermines arbitration, such as a sale of the unit before the panel reaches a decision, could allow the issue to go to court.

The type of chip produced by the joint venture, known as flash memory, is enjoying a bumper year. Micron Technology Inc., Samsung Electronics Co. and SK Hynix Inc. have all reported strong demand for the product as the industry moves away from magnetic disks in computer storage. Toshiba’s sale has garnered significant interest, with preliminary bids as high as $26 billion from Hon Hai Precision Industry Co., Bloomberg reported last month. Other bidders include SK Hynix and Broadcom Ltd.

For all the latest Tech News, download Indian Express App now</s>Western Digital announced that it’s taking its fight with Toshiba to the International Court of Arbitration in San Francisco to stop the sale of its jointly operated memory-chip business without its consent.

For those of you not up to speed on the current situation, Western Digital acquired control of half of Toshiba's main semiconductor plant when it bought SanDisk almost a year ago today. Since then, Toshiba suffered significant financial hardship after its U.S. subsidiary, Westinghouse Electric, filed for bankruptcy earlier this year. As a result, Toshiba transferred ownership of the joint venture assets held with Western Digital into the newly formed Toshiba Memory with the intent of selling the unit to the highest bidder.

Toshiba's attempt to spin out its joint venture interests into an affiliate and then sell that affiliate is explicitly prohibited without SanDisk's consent. Seeking relief through mandatory arbitration was not our first choice in trying to resolve this matter. However, all of our other efforts to achieve a resolution to date have been unsuccessful, and so we believe legal action is now a necessary next step.

The majority stake sale of the semiconductor business poses no conflicts with the joint venture contract with Western Digital. Western Digital has no basis for stopping the procedure. We will communicate to the candidates the legitimacy of our argument to wipe out their concerns.

Given Toshiba’s current financial state, sale of the newly formed memory unit is extremely important to the company's financial recovery. In a statement, Toshiba's CEO stated that Western Digital’s complaint was groundless and that his company would push on with the sale, with a second round of bidding to commence on Friday. Just last week, Toshiba sent two letters to Western Digital asserting that the company had the right to sell its part of the semiconductor joint venture and that Toshiba would block Western Digital employees from its facilities and networks unless it complies by May 15.

A three-person panel in San Francisco will hear the arbitration under the rules of the International Chamber of Commerce. Toshiba has 30 days to respond to the request for arbitration.</s>WESTERN DIGITAL has demanded that Toshiba go to arbitration in a bid to prevent it from selling its 50 per cent stake in the business to the highest bidder.

The move comes after Toshiba sent formal legal warnings to Western Digital, urging it to back off, just weeks after Western Digital threatened to take action to block the sale by Toshiba.

Western Digital, in turn, claims that the legal transfer of Toshiba's interests in its joint-venture to a subsidiary, Toshiba Memory, as part of the sale process violates the "anti-transfer provisions of the joint venture agreements", as it was done without the consent of Western Digital-owned SanDisk.

The Japanese company put its prize asset on the block after its US nuclear power business, Westinghouse, was put into Chapter 11 bankruptcy protection following a series of disastrous business decisions.

Toshiba is planning to sell its 50 per cent stake in the semiconductor unit in a bid to plug a hole in the company's accounts, which arose as a result of the disaster in its Westinghouse subsidiary.

Western Digital only acquired its 50 per cent stake in the business due to its $19bn acquisition of SSD maker SanDisk in May 2016.

Toshiba claims that not only did it not raise any objections over that transfer of ownership, but that Western Digital never formerly updated the joint venture agreement between the two companies following the transfer. Toshiba further claims that it is well within its rights to sell its 50 per cent stake to whoever it likes.

As many as ten companies and consortia have lined up to register an interest in bidding for the stake, including Western Digital. However, the Irvine, California-based company is likely to be financially outgunned as it is already highly leveraged as a result of the SanDisk acquisition.

But Western Digital has not been put off by Toshiba's legal warnings. Instead, Western Digital has begun arbitration proceedings with the International Chamber of Commerce with the aim of halting the sale of the assets without Toshiba's consent.

"The arbitration demand seeks among other things an order requiring Toshiba to unwind the transfer to Toshiba Memory, and injunctive relief preventing Toshiba from further breaching the Flash JV agreements by transferring its Flash JV interests, or any interest in an affiliate that holds its Flash JV interests, without SanDisk's consent," claimed Western Digital in a statement.

Western Digital CEO Steve Milligan added that a transfer of ownership without the consent of the joint-venture partner was explicitly prohibited by the terms of the agreement.

"In order to protect against being forced into such a relationship with parties not of their choosing, SanDisk and Toshiba agreed to protect their interests in the joint ventures by prohibiting transfers without the consent of the other party," said Milligan in the statement.

"Toshiba's attempt to spin out its joint venture interests into an affiliate and then sell that affiliate is explicitly prohibited without SanDisk's consent.

"Seeking relief through mandatory arbitration was not our first choice in trying to resolve this matter. However, all of our other efforts to achieve a resolution to date have been unsuccessful, and so we believe legal action is now a necessary next step." µ</s>TOKYO (AP) — Western Digital is seeking arbitration in a dispute with its joint venture partner Toshiba Corp. over the sale of the Japanese electronics giant’s computer-chip business.

Toshiba wants to sell the lucrative chips unit to repair its finances, but Western Digital is demanding Toshiba first obtain its consent.

Tokyo-based Toshiba forecast Monday a 950 billion yen ($8.4 billion) loss for the fiscal year that ended in March. That report was issued without the endorsement of Toshiba’s auditors.

Western Digital said in a statement that several of its SanDisk subsidiaries have filed a request for arbitration with the ICC International Court of Arbitration over plans to sell its NAND flash-memory joint ventures with Toshiba. The request seeks to block the sale, arguing it would be violation of their joint venture agreement. The arbitration will take place in San Francisco, it said.

“Seeking relief through mandatory arbitration was not our first choice in trying to resolve this matter. However, all of our other efforts to achieve a resolution to date have been unsuccessful, and so we believe legal action is now a necessary next step,” said Western Digital Chief Executive Steve Milligan.

Toshiba President, Satoshi Tsunakawa, who has acknowledged that the company’s strategy based on Westinghouse was a mistake, said he doesn’t think Western Digital can block Toshiba.

“With regards to your first question as to whether this may delay bidding procedures, we will try to dispel such concerns by explaining to all potential bidders the validity of Toshiba’s position,” he told reporters.

Toshiba described the financial results it released Monday as “projections,” rather than results. The dismal figures were in line with earlier estimates.

Toshiba’s U.S. nuclear business Westinghouse has filed for bankruptcy protection. Its losses, and a years’ long accounting scandal are imperiling the company’s future. Toshiba’s earnings reports, meanwhile, have been delayed by questions over its acquisition of U.S. nuclear construction company CB&I Stone and Webster.

Toshiba said it expects to post a profit of 50 billion yen ($442 million) for the fiscal year through March 2018.

Costs in the nuclear industry have ballooned since the March 2011 tsunami in northeastern Japan, when three reactors at the Fukushima Dai-ichi nuclear plant sank into meltdowns, and stricter safeguards are required to operate and build reactors.

Her work can be found at https://www.apnews.com/search/yuri%20kageyama
Western Digital appeals to arbitration in an effort to prevent its partner Toshiba, from selling its chip-making operation, Toshiba Memory.