By Joyce Lee and Taro Fuse
SEOUL/TOKYO (Reuters) – South Korea’s SK Hynix Inc <000660.KS> said on Wednesday its board had approved its participation in a Bain Capital-led consortium that plans to purchase Toshiba Corp’s <6502.T> memory chip unit for 2 trillion yen ($17.7 billion).
SK Hynix said in a statement it will invest 395 billion yen, part of which will be in convertible bonds that could allow it to take an equity stake of up to 15 percent in the future.
Toshiba’s board agreed last week to sell the unit, the world’s second biggest producer of NAND chips, to the Bain group although a formal signing has been delayed, with sources saying they did not expect it to be signed on Wednesday.
While talks relating to consortium member Apple Inc’s <AAPL.O> demands on chip supply have now been settled, the group still has to work out one snag that relates to financing in the event that legal risks materialize, one source with direct knowledge of the deal said.
A Toshiba spokesman said the firm was aiming for a signed deal as soon as possible. Bain and Apple did not immediately reply to requests for comment. Sources declined to be identified due to the sensitivity of the matter.
The Bain-led consortium will hold 49.9 percent of the voting rights in the chip unit, while Toshiba will hold 40.2 percent and Japan’s Hoya Corp <7741.T>, a medical technology firm that also makes parts for chip devices, will own 9.9 percent, the SK Hynix statement said.
Consortium members Apple, Dell Inc [DI.UL], Seagate Technology Plc <STX.O> and Kingston Technology, will invest in the form of non-convertible preferred shares, it said.
Pressure from the Japanese government, changing alliances among suitors and a slew of revised bids has drawn out the auction over nine months – heightening the risk that the deal may not close before the end of Japan’s financial year in March as regulatory reviews usually take at least six months.
If the deal does not close before then, Toshiba – hurt by liabilities at now bankrupt nuclear unit Westinghouse – is likely to end a second consecutive year in negative net worth, putting pressure on the Tokyo Stock Exchange to strip it of its listing status.
The sale also faces legal challenges from Western Digital <WDC.O>, Toshiba’s chip venture partner and rejected suitor, which is seeking an injunction to block any deal that does not have its consent.
Western Digital, one of world’s leading makers of hard disk drives, paid some $16 billion last year to acquire SanDisk, Toshiba’s chip joint venture partner since 2000. It sees chips as a key pillar of growth and is desperate to keep the business out of the hands of rival chipmakers.
Toshiba has said the sale would improve its shareholders’ equity by 740 billion yen.
(Reporting by Joyce Lee and Taro Fuse; Additional reporting by Makiko Yamazaki and Hyunjoo Jin; Editing by Edwina Gibbs)