Toshiba(TOSYY) Commits To Selling Minority Stake In Memory Business

Toshiba Corp. (TOSYY) has today outlined more details of the plan to sell off part of its memory chip business, in an effort to raise funds ahead of a multi-billion dollar write down of its US nuclear business.

CEO Satoshi Tsunakawa said at a news conference on Friday:

“We had been thinking of splitting off semiconductors to beef up our finances, and the recent nuclear write-down risk accelerated the discussion.”

Earlier this week, the company acknowledged speculation that it was considering a sale of the unit. Today’s announcement contained more precision on the scope of the business to be split and on a potential timeline.

Toshiba plans to create a new corporate entity containing its memory business including solid state drives but excluding image sensors. A maximum of 19.9% of this new entity would then be sold, with proceeds to Toshiba expected at over USD 2 billion. This amount represents the bare minimum Toshiba needs to survive according to Bernstein Research analyst Mark Newman:

“Considering that shareholder equity stands at JPY 363 billion (barely $3billion), Toshiba’s financial status stands on the precipice.

Assuming a $5billion charge for nuclear, the company will need at least $2billion to stay afloat. We see shareholder equity going significantly negative and not going positive for a couple years at least, forcing the company to take drastic action. An equity raise is highly likely – leading to significant dilution – but a sale of key assets like the memory business could go a long way to alleviate the situation.”

The spinoff is expected to be completed by the end of March. Over the longer term, a public listing is being considered. According to Toshiba Senior Vice President Yasuo Naruke:

“We have not decided the details, but we believe an IPO is one of the future possibilities”.

As well as the memory split, the company is considering selling other assets from its portfolio of over 500 businesses. Tsunakawa also confirmed today that the company will “reconsider the future of the overseas nuclear business”.

The true scale of Toshiba’s financial woes will be revealed on February 14th when it will announce the exact figure for the US nuclear write down. Well, that’s one way to ruin Valentine’s Day.

Disclosure: The author has no position in any stock mentioned