Toshiba Corp. (TOSYY) is suing joint venture partner Western Digital Corp. (WDC) - Get Western Digital Corporation Report for ¥120 billion ($1 billion), ratcheting up the stakes in a legal battle with allegations that the San Jose, Calif. chip maker has illegally interfered in the sale of its memory chip unit and stolen sensitive technology.
The announcement of the litigation, on Wednesday, June 28, capped another difficult day for Toshiba's management who were obliged to front an angry shareholder meeting to admit that they had missed a self-imposed deadline to finalize an agreement to sell Toshiba Memory Corp., or TMC.
Toshiba shares closed Wednesday at ¥287.60, down 1.8%.
Tokyo-based Toshiba, last week, named a Bain Capital LLC-led consortium as its preferred bidder following an auction of its memory unit and said it hoped to sign a binding agreement before Wednesday. Bain, backed by South Korean chipmaker SK Hynix Inc. and Japanese state-backed investors Innovation Network Corp. of Japan and Development Bank of Japan offered about ¥2 trillion ($18 billion) for the world's biggest maker of NAND flash memory.
"We are continuing to negotiate with the consortium," Toshiba said in a statement on Wednesday. "Coordinating with its various members is taking time, and we have not reached an agreement."
Toshiba's litigation, filed with a Tokyo district court, is part of an effort to ensure that the sale agreement can quickly move be conclusion by ending Western Digital's efforts to block a disposal. Toshiba needs to quickly sell its memory unit to cover a record ¥950 billion net loss, and potential further liabilities, resulting from the collapse of its U.S. nuclear energy division Westinghouse Electric.
Western Digital has filed both a legal objection to the sale and triggered an arbitration clause in its joint venture agreement, claiming that the memory unit can't be sold without its consent.
Toshiba denies that Western Digital has the right to block the sale and, on Wednesday, said its JV partner had "continually interfered" with efforts to sell the memory business and "exaggerated its consent right."
The Japanese group also accused Western Digital of improperly obtaining proprietary information from the companies; JV by transferring employees from its SanDisk unit, which operates the flash memory joint-venture with Toshiba, back to Western Digital. Toshiba said it will, from Wednesday, block Western Digital and SanDisk employees from accessing sensitive information.
"Toshiba considers that WD's actions are damaging to both Toshiba and TMC, violate the Unfair Competition Prevention Act, and are tortuous acts under the Civil Code," the Japanese group said in a statement. "Toshiba and TMC have filed the petition for a provisional disposition order seeking an injunction to put an end to WD's damaging actions, and a suit seeking permanent injunction and damages."
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