Toshiba to sell stake in chip business to raise money

Toshiba CEO Satoshi Tsunakawa confirmed the conglomerate is looking to sell a piece of its memory chip business to raise money to deal with an upcoming multi-billion dollar writedown in its nuclear division. The chip business includes Toshiba's NAND flash memory unit, the second largest in the world, and makes up the bulk of Toshiba's profit.

The goal is to sell a minority stake of maximum 20 percent and this needs to happen sooner rather than later as the company wants to complete the sale before the end of its fiscal year in March:

The firm is rushing to complete the sale by the end of the financial year in March as failure to do so will likely mean that shareholder equity - just $3 billion in the wake of the accounting scandal - would be wiped out by the charge.

Sources have said Toshiba aims to raise more than 200 billion yen ($1.7 billion) from the sale and potential investors include private equity firms, business partner Western Digital Corp (WDC.O) and the government-backed Development Bank of Japan.

It is also selling other assets although it ruled out the sales of any of its infrastructure businesses - which include water treatment, railway and elevator firms.

While Western Digital would be a natural fit given the cooperation both companies have in the NAND market, such a deal is unlikely to close in such a short timeframe given the antitrust issues it would entail. Private equity funds on the other hand may look for a discount because such a small minority stake would give them no say in how Toshiba runs the business.

Mark Newman, an analyst at Sanford Bernstein in Hong Kong, points out that the NAND business comprises 75 percent of Toshiba's overall profit. He believes the sale of a 20 percent stake would likely be merely a short-term band-aid:

"The NAND business is the only one with value, as it makes up all of the semi-conductor profits, which comprise 75 percent of the overall company's profit. I won't be surprised if they sell another 20 percent in a few years time and then another 20 percent."