Western Digital Corp. (WDC - Get Report) late Wednesday announced that it will pursue legal action to bar Toshiba Corp.'s plan to transfer its interests in three NAND flash-memory joint ventures it operates with Western SanDisk subsidiaries to a consortium led by Korea-based SK Hynix Inc. and Bain Capital LP.
Western said that several of its SanDisk subsidiaries have filed an additional request for arbitration with the ICC International Court of Arbitration related to three NAND flash-memory JVs operated with Toshiba.
Western bitterly criticized Toshiba's (TOSBF) signing of a transfer agreement with the Bain group, which was announced Wednesday, Sept. 20 in a deal valued at $18 billion.
The unit is the world's second-largest producer of NAND memory chips.
Western Digital in June filed a lawsuit seeking an injunction against Toshiba's plans to sell its interest to the Bain group. In late July Toshiba and Western Digital agreed to a state judge's order to attempt reaching an agreement through arbitration rather than waging a legal fight over the injunction request. The agreement requires Toshiba to publicly announce any deal to sell the venture and provide Western Digital two weeks' notice before any such sale closes. The notice would give Western Digital time to renew litigation or react within the arbitration proceeding.
"It is unfortunate that SanDisk is forced to initiate binding arbitration to remedy Toshiba's retaliatory breach of the JV agreement entered into by both SanDisk and Toshiba," Western said in a statement. "The terms of the agreement and our related legal rights are clear. The agreement gives SanDisk the right to participate in expansions and conversions of manufacturing capacity for BiCS 3D NAND flash memory products through joint investments in Fab 6 equipment. Toshiba has improperly denied SanDisk its rights to joint investment by unilaterally investing in manufacturing equipment at Fab 6."
"Our goal all along has been to reach a mutually beneficial outcome that addresses all issues for Toshiba and its stakeholders, and most importantly, ensures the longevity and continued success of the JVs," Western said. "Throughout our ongoing dialogue with Toshiba, we have remained flexible and have submitted numerous proposals that have specifically addressed all of Toshiba's concerns. We are disappointed that Toshiba would take this action despite Western Digital's tireless efforts to reach a resolution that is in the best interests of all stakeholders."
Western shares were down nearly 4% Wednesday, a $3.55 drop to $86.37.
Western added that "it is troubling that Toshiba would pursue this transaction without SanDisk's consent, as the language in the relevant JV agreements is unambiguous, and courts have entered multiple rulings in favor of protecting SanDisk's contractual rights. Toshiba has also acknowledged and validated SanDisk's legitimate consent rights on multiple occasions."
Western Digital added that it "remains confident that SanDisk will succeed on the merits of its arbitration requests" filed in May and July. Those remain underway in the ICC International Court of Arbitration.
Western also noted that on July 28 the Superior Court of California for the County of San Francisco entered a stipulated order preventing Toshiba from closing any transfer of its JV interests without providing at least 14 days advance notice to SanDisk.