The planned sale of Toshiba Corp.’s memory division faces an uphill battle as its long-time U.S. partner Western Digital (WD) intensifies its opposition to the sale to a consortium joined by South Korean rival SK Hynix Inc. and raises concerns over possible leaks of key technology after the transaction.

WD has notified Toshiba’s board of directors that it formally opposes Toshiba’s sale of its memory division to any group that has ties to its primary competitor SK Hynix, questioning SK Hynix`s motives in lending to the consortium, according to Nihon Keizai Shimbun on Monday.

WD, which jointly runs Toshiba`s semiconductor plant in Yokkaichi, Japan, has been feuding with its Japanese partner over the sale, and has sought a U.S. court injunction to prevent any deal that does not have its consent.

On June 21, Toshiba chose a consortium formed by state-backed Innovation Network of Corp. of Japan, Development Bank of Japan, U.S. private equity fund Bain Capital and SK Hynix as the preferred bidder for its flash memory chip business. To circumvent antitrust regulations, its direct rival SK Hynix has decided to lend 300 billion yen ($2.7 billion) to the special purpose company established for acquiring Toshiba’s memory business instead of taking an equity stake in it. The consortium reportedly proposed 2 trillion yen or more.

“It is unacceptable that SK Hynix participates in the bid on condition of its funding alone. Given the nature of the fund consortium, it is very likely for the alliance to completely sell the memory division to SK Hynix in the future,” WD argued.

WD previously partnered with U.S. private equity fund Kohlberg Kravis Roberts (KKR) to make an offer of roughly 2 trillion yen for Toshiba’s memory unit. It had proposed a deal where it would hold no voting rights and waive its rights to integrate the division into its subsidiary. WD is now proposing that it could form a separate consortium with KKR and Japanese government investors currently supporting the Korea-US-Japan alliance.

WD has sought an injunction against the sale in a California court. A hearing is scheduled for July 14. WD is reported to have mentioned possible leaks of NAND flash technology to SK Hynix, the newspaper reported. WD said Toshiba sued SK Hynix three years ago over the suspected theft of intellectual property and the claim was settled out of court, with SK Hynix paying $278 million.

By Park Dae-eui

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