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Exclusive: Toshiba now favors Bain group for chip sale; Western Digital talks stall - sources

By Taro Fuse

By Taro Fuse

Tokyo (Reuters) - Toshiba Corp <6502.T> now favors a group led by Bain Capital LP and SK Hynix Inc <000660.KS> to buy its prized semiconductor business, as it failed to bridge key gaps with its business partner and rival bidder Western Digital Corp <WDC.O>, two people briefed on the matter said on Tuesday.

The Japanese conglomerate, which needs to sell the chip business to plug a huge hole in its finances, had been trying to seal a deal by Wednesday with the Western Digital group but now hopes to reach agreement with the Bain group by next week, said the sources, who declined to be identified as the talks were private.

A Toshiba spokesman said the firm could not comment on details of the talks. They have already missed two deadlines by Toshiba's banks, which want a deal to pump $18 billion or more into the company to pull it out of negative shareholder equity and preventing it from being delisted.

A Western Digital spokeswoman also declined to comment. The Japanese unit of Bain Capital and SK Hynix could not be reached for comment outside business hours.

Toshiba is desperate to sell the unit to cover billions of dollars in liabilities from its bankrupt U.S. nuclear unit Westinghouse. The board had been seeking to decide on the preferred bidder for the sale, beset by legal wrangling and revised bids, on Wednesday, people involved in the talks previously told Reuters.

The 2 trillion yen ($18 billion) bid led by Western Digital Corp <WDC.O> and U.S. private equity fund KKR & Co <KKR.N> had been in the lead, sources had previously said.

But those talks snagged as Toshiba, fearing that Western Digital was angling to eventually take over the chip business, sought to control the U.S. firm's stake in return for a better position in their current chipmaking joint venture, the sources said.

The Bain-led group had been chosen preferred bidder in June. But those talks lapsed as Japan government investors who had been part of that consortium told Toshiba they were reluctant to close a deal in the face of the legal challenges posed by California-based Western Digital, which jointly invests in Toshiba's key NAND memory plant in central Japan.

(This version of the story was refiled to update headline)

(Reporting by Taro Fuse; Additional reporting by Hyunjoo Jin; Writing by Makiko Yamazaki; Editing by William Mallard and Susan Thomas)