Investing 4 Trillion Won: SK Hynix Tries to Get 15% of Voting Rights for Toshiba Memory | BusinessKorea

Saturday, November 18, 2017

SK hynix resolved to invest 4 trillion won (US$3.6 billion) in Toshiba Memory in a meeting of the board of directors in the morning of September 27.
SK hynix resolved to invest 4 trillion won (US$3.6 billion) in Toshiba Memory in a meeting of the board of directors in the morning of September 27.
27 September 2017 - 9:45pm
Michael Herh

SK Hynix will invest a total of 4 trillion won (US$3.6 billion) in Toshiba Memory in Japan. In particular, the company succeeded in securing the right to acquire a 15% stake in Toshiba Memory. Analysis says that the decision expanded a possibility that SK Hynix and Toshiba will collaborate or forge technology alliance with each other.

In the first place, a concern was raised that SK Hynix might make financial investment only without securing voting rights to Toshiba Memory as the Japanese government will hate to see a Korean company that is a rival to Japanese companies secure voting rights.

SK Hynix announced that the company resolved to invest in Toshiba Memory in a meeting of the board of directors in the morning of September 27. Toshiba memory by the Korea-US-Japan Consortium which includes SK Hynix will pay 2 trillion yen (US$17.7 billion) for the acquisition of the Toshiba Memory and SK Hynix will fork over 395 billion yen (US$3.5 billion).

SK Hynix will invest 395 billion yen (US$3.5 billion) of the total investment amount in the form of convertible bonds and be able to acquire an up to 15% stake in voting rights to Toshiba Memory in the future.

SK Hynix will not directly acquire convertible bonds issued by Toshiba but acquires convertible bonds issued by a special purpose corporation (SPC). SK Hynix will be able to turn such convertible bonds into equities in Toshiba Memory when Toshiba Memory is listed.

The remaining 266 billion yen (US$2.35 billion) will be invested in a fund to be established by Bain Capital with SK Hynix as an LP (limited partner). If Toshiba Memory is listed and its subscription price rises, SK Hynix will be able to enjoy capital gains, too.

A dominant view is that this equity investment will give SK Hynix a bridgehead to overcome its weaknesses. If SK Hynix, the world's fifth largest NAND flash maker, joins forces with Toshiba, SK Hynix will be able to lay the foundation for competing with Samsung Electronics, the No. 1 player in the world NAND flash market.

In addition, on SK Hynix’s part, patent disputes can be easily avoided through collaboration with Toshiba Semiconductor which has fundamental technology for NAND flash memories. SK Hynix is the world's second-largest DRAM maker, but has yet to stand out in NAND flashes and system semiconductors.

The Korea-US-Japan Alliance which will acquire Toshiba Memory includes SK Hynix, Bain Capital, Toshiba, Hoya, Apple, Kingston, Seagate and Dell. The consortium including SK Hynix and Bain Capital, Toshiba and Hoya have 49.9%, 40.2% and 9.9% equities in voting rights, respectively. Apple, Kingston, Seagate and Dell will invest in the form of corporate bond-type preferred stocks. In addition, forming the strategic consortium with multinational corporations may bring SK Hynix an opportunity to cooperate with companies that will lead the fourth industrial revolution.

The Korea-US-Japan Alliance is planning to conclude a stock deal with Toshiba and endeavor to complete the sell-off of Toshiba Memory until March 2018.

Meanwhile, Chey Tae-won, chairman of the SK Group, embarked on a business trip to Japan with Park Jung-ho, president of SK Telecom on the day. The trip is interpreted as a move to coordinate the acquisition of Toshiba Memory at the eleventh hour.

Under the circumstances, however, according to Japanese media including the Nihon Keizai Shimbun on September 27, Western Digital (WD) announced on September 26 (local time) that it will file a provisional injunction requesting the International Arbitration Court of the International Chamber of Commerce (ICC) to suspend the sale of Toshiba memory.

WD, a joint venture that runs a Toshiba semiconductor plant located in the city of Yokkaichi, Mie Prefecture of Japan with Toshiba, wanted to take over Toshiba Memory but failed and applied for an injunction against the sell-off of the semiconductor business to the international court in May.

However, since it usually takes more than a year for the International Arbitration Court to arrive at a conclusion for arbitration, WD decided to seek an injunction which can put a quick brake on the sell-off of Toshiba Memory.

Now that Toshiba aims to complete the sale of Toshiba Memory by the end of March 2018, WD is aiming to halt the sale process through a disposition by the time. WD expects the results of its application for an injunction to come out within this year at the earliest.

Toshiba will not be able to sell off its memory business until the International Arbitration Court comes to a conclusion about the arbitration lawsuit filed by WD in May of this year if and when the court rules in favor of WD’s injunction against the sell-off. It is forecast that the court will make a ruling in favor of WD. If WD wins the case, it will give rise to the worst case -- disabling Toshiba from taking care of excessive liabilities by the end of March, 2018 and subsequently delisting Toshiba from the Tokyo Stock Exchange.       

Earlier, on September 20, Toshiba decided to sell off its memory business to the Korea-US-Japan Alliance led by US Bain Capital. Then, the following day, against the decision, WD filed a lawsuit to prevent Toshiba from making sole investment in the expansion of Yokkaichi Plant in Mie Prefecture of Japan.



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