Toshiba Expected to Reject Foxconn's $27B Bid For Memory Chip Unit Due To China Ties

Early in March, Apple suppliers Foxconn and Taiwan Semiconductor Manufacturing Company announced their intention to bid for a stake in Toshiba's memory chip unit, which the company has put up for sale in an effort to offset a nearly $6 billion loss related to its overseas nuclear division. TSMC eventually dropped out of the race, leaving Hon Hai (Foxconn) as the highest bidder at nearly 3 trillion yen, or $27 billion.

Today, people familiar with the sale speaking to Bloomberg said that Toshiba is expected to reject Foxconn's lofty bid, mainly because of likely opposition from both the Japanese and American governments if Foxconn were to win Toshiba's memory chip business. Taiwan-based Foxconn has deep ties with China due to its numerous, large iPhone production facilities being located in the country, and those ties are expected to sit unfavorably with Japanese officials watching the bids on Toshiba's memory chip unit.

According to insiders, Toshiba sees a sale to Foxconn as an inevitable drag through regulatory approvals and delays, and is now willing to give "serious consideration" to lower bids.

Taiwan’s Hon Hai, which has indicated its willingness to pay as much as 3 trillion yen ($27 billion) for the chip unit, would face resistance because of its ties to China, said the people, asking not to be identified because the matter is private. That could drag out regulatory approvals and delay badly needed cash payments to Toshiba, raising the risks of such a deal, the people said. Hon Hai, the primary iPhone assembler for Apple Inc., has most of its factories in mainland China.

Next in line is said to be a potential offer of 2 trillion yen made by Broadcom, but current bids are non-binding and could change at any time, with the next round of bidding coming in the middle of May. The Japanese government is said to be "keeping a close eye on the process" and is expected to protect its interests in any sale that occurs with Toshiba.

On Tuesday, two senior officials, Chief Cabinet Secretary Yoshihide Suga and Industry Minister Hiroshige Seko, said Japan would protect its interests in any sale. “We are keeping a close eye on the process,” Suga said. “As a general principle, there would be a requirement to examine any deal under the foreign exchange law.”

The Japan government is organizing an alternative offer from Japanese companies that aims to inject 500 billion yen into the chips unit in exchange for a minority stake, one person said. Current bids are non-binding and could change. The deadline for the next round of bidding is mid-May, one of the people said.

Toshiba's likelihood in passing on Foxconn's bid is also said to be backed by a fear of the supplier's business methodology displayed during its acquisition of Sharp in 2016. In that process, the two companies originally agreed to a $6.2 billion takeover, but the final amount landed around $3.5 billion due to Foxconn's last minute bidding adjustment. Foxconn said the decision was based on discovering that Sharp had hundreds of billions of yen in "previously undisclosed liabilities," but the tactics are now said to make Toshiba "reluctant" to agree to Foxconn's bid.

Toshiba is also looking closely at a bid made by South Korea's SK Hynix, but the winning bidder isn't expected to be announced until June, ahead of Toshiba's next shareholder meeting.

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