Toshiba and Western Digital aim to settle chip-sale dispute next week

Deal should pave the way for Toshiba to complete the sale of its chip unit to a consortium led by Bain Capital

Toshiba and Western Digital have long been in dispute as a result of the Toshiba's decision to sell its highly regarded semiconductor business to a consortium led by Bain Capital - rather than Western Digital, with whom the chip-making unit co-owns fabication facilities in Japan.

However, according to Reuters' sources, the two companies have agreed to come to an agreement to end the friction around the sale of Toshiba's $18 billion chip unit.

Reuters reports that the companies will announce a resolution by next week. By this Wednesday, it suggests, Toshiba had forwarded a potential settlement framework.

Western Digital effectively went into partnership with Toshiba Memory Corporation, Toshiba's semiconductor unit, when it purchased SanDisk last year for around $16 billion. SanDisk and Toshiba enjoy 50-50 joint ownership of semiconductor plants in Japan.

Western Digital had argued that Toshiba had no right to sell Toshiba Memory Corp without its consent under the terms of the agreement between SanDisk and Toshiba.

Western Digital had therefore argued that Toshiba ought to sell Toshiba Memory Corp to it, while Toshiba wanted to maximise its return from the sale in order to plug a hole in its accounts so large that it could be thrown off of the Tokyo Stock Exchange at the end of the current financial year if it isn't plugged.

However, the two companies have declined to comment in detail about the rumours, although Reuters claims that a Toshiba spokesperson has confirmed that a settlement is possible in the next week.

Through the agreement, the two companies will extend their chip partnerships in Yokkaichi, Japan. Existing agreements will expire by 2021. Western Digital will also invest in a plant set to be built by Toshiba.

Toshiba's financial difficulties relate to mismanagment, which were particularly exposed after Westinghouse, its US-based nuclear power business, was forced to file for Chapter 11 bankruptcy protection. The company opted to sell a controlling stake in its well-respected chip-making business as the quickest way to raise the funds to plug the resulting hole in its accounts.

It selected a consortium led by Bain Capital, but will retain a major stake in the business, while investments from a number of other Japanese companies will ensure that the chip-making unit remains majority Japanese owned.