SK Hynix’s Strategy in Trouble
"We are negotiating with other companies, as well," said the president of Toshiba of Japan who is negotiating the sale of the company’s semiconductor business with a Korea-US-Japan alliance that includes SK Hynix of Korea. It was the first time that the top officials of Toshiba officially acknowledged this, although the press had carried related stories. SK Hynix’s acquisition strategy is expected to encounter an unexpected setback.
According to NHK and other Japanese sources, "We are negotiating with Western Digital (WD) of the United States and Hon Hai Precision Industry (Foxconn) of Taiwan apart from the Korea-US-Japan alliance," said Toshiba president Satoshi Tsunakawa in a press conference at the headquarters in Tokyo on August 10. "Although we have been negotiating with the Korea-US-Japanese alliance which is the preferred bidder, we did not reach an agreement by the deadline, so we are negotiating with other countries."
The Korea-US-Japan alliance is comprised of SK Hynix, the Innovation Network Corporation of Japan (INCJ), a public-private investment fund, the state-run Development Bank of Japan and Bain Capital, a US private equity fund. On June 21 when the Korea-US-Japan alliance was selected as the preferred bidder Toshiba said that they will sign a deal after finishing detailed negotiations at a general shareholders' meeting scheduled for June 28, but the contract has not yet been signed.
It is said that SK Hynix has been seeking to own some stake in Toshiba Semiconductor, stalling the negotiations. SK Hynix has to acquire the stake to generate synergies. Toshiba is focusing on the NAND flash business while D-RAMs are the main item of SK Hynix and SK Hynix is weak in the NAND flash business. So SK Hynix believes that the acquisition of equities in Toshiba Semiconductor will make up for its weakness. On the other hand, the Japanese government leading the negotiation is reluctant to give a Korean company a stake in its major company.
WD is a long-time business partner of Toshiba. But it is said that WD cannot afford to buy Toshiba Semiconductor. Although Hon Hai has enough funds to buy the semiconductor unit, it is not clear whether or not Hon Hai will take part in the acquisition of the unit and the Japanese government is concerned about a lead of technology to Hon Hai like SK Hynix. Some say that the remark by the Toshiba president is playing with the media aimed at making the negotiation more advantageous to Toshiba. "We have nothing to say about Tsunakawa's remarks," SK Hynix said.