Toshiba, keen to seal $18 billion chips sale, wrestles with last-minute delays

Toshiba is the world’s number two chipmaker and its Toshiba Memory unit accounts for about a quarter of its revenue. (Reuters)
Updated 21 September 2017
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Toshiba, keen to seal $18 billion chips sale, wrestles with last-minute delays

TOKYO: Japan’s Toshiba Corp. is locked in last minute discussions over “key issues” with the would-be buyers of its $18 billion (SR67.5 billion) memory chip business led by US private equity firm Bain, potentially delaying a formal agreement on the sale.
Toshiba said on Wednesday it had agreed to sell the prized unit to the Bain consortium, and had been expected to formalize the sale on Thursday.
Instead, South Korea’s SK Hynix, part of the winning consortium, said talks were still ongoing. Sources familiar with the matter confirmed consortium members were still wrangling over details of their agreement and said commitment letters from all participants were still needed before the sale could be signed formally.
“There are some key issues still to be agreed upon in the content approved by Toshiba’s board,” the South Korean chipmaker said in a statement, adding that it would continue talks.
Toshiba and Bain did not immediately reply to a request for comment.
Adding to uncertainty, jilted suitor and Toshiba joint venture partner Western Digital took fresh legal action overnight, filing new arbitration requests to stop Toshiba investing in a new flash memory production line without its help.
Shares in Toshiba reflected the concerns, falling more than 2 percent in late afternoon trade.
Struggling to plug a yawning balance sheet hole after a cost blowout at its now-bankrupt US nuclear business, Toshiba has been trying to sell its chip business since late January.
Agreeing the sale of the world’s second-largest producer of NAND flash memory chips brings the group closer to the end of a tangled and fraught process.
As late as Tuesday night, sources said Toshiba was leaning toward selling the business to Western Digital.
Bain has partnered with SK Hynix and brought in deep-pocketed US buyers of Toshiba chips such as Apple and Dell to bolster its bid.
But there are major unknowns, including the outcome of antitrust investigations and the battle with Western Digital.
It is unclear how long that process could last, and what impact it would have on the completion of the sale.
Industry watchers also said SK Hynix’s participation could prolong antitrust reviews, particularly in China, as Beijing is trying to grow domestic players. The South Korean chipmaker plans to limit its role to financing, but it’s unclear if it hopes to gain a stake in the future.
“It’s clear to everyone that this Bain deal will have difficulty succeeding,” said Akira Minamikawa, principal analyst at IHS Markit.
The NAND flash memory chips business faces fierce price competition with Samsung Electronics, he said, and China was likely to join the race.
“To survive, Toshiba needs to shift its focus to (flash memory-backed) storage systems for servers rather than selling memory chips alone. And strong players there are Samsung and Western Digital, not (new partner) SK Hynix.”


Mozambique’s gas-fueled future threatened by militants

Updated 24 June 2018
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Mozambique’s gas-fueled future threatened by militants

  • An unprecedented wave of militant attacks in northern Mozambique has raised fears the country will fail to fully cash in on a gas bonanza
  • Since October, more than 30 people have been killed in brazen assaults on unarmed villagers

MAPUTO: An unprecedented wave of militant attacks in northern Mozambique has raised fears the country will fail to fully cash in on a gas bonanza.
After 180 trillion cubic feet (5.1 trillion cubic meters) of natural gas were discovered off the country’s northeastern shore, Mozambique entertained dreams of following Qatar down the path toward wealth. The government even predicted that by 2035, the country’s GDP per head could increase sevenfold.
But the southeast African country’s golden vision has been thrown into doubt by an explosion of bloodthirsty assaults by a shadowy militant group in the region where the industry plans to base its hub.
Since October, more than 30 people have been killed in brazen assaults on unarmed villagers.
Security forces have rushed reinforcements to be area yet seem powerless to stem the attacks. Terrorized, many civilians have fled their homes and a cloud hangs over the great expansion plans.
US oil and gas giant Anadarko, the largest exploration company in the region, has invested $4 billion (3.4 billion euros) so far — it plans to put in $20 billion over the lifetime of the gasfields.
But following a US embassy alert on June 8 that warned of an imminent attack on the regional gas hub Palma, Anadarko temporary suspended some activities and moved affected workers and contractors to a secure site.
Canada’s Wentworth Resources has already suffered delays to its projects as a result of the insecurity, forcing it to seek a year-long extension for its initial exploration.
In its successful application to the authorities, Wentworth said the attacks had “prevented safe access to the area for Wentworth staff and contractors.”
There have been more than 10 attacks on villages since October, featuring beheadings and arson. None has targeted gas operations.
“Due to the attacks, we took additional measures to protect not only the oil and gas companies operating in that area, but also to protect the communities,” said Joaquim Sive, the police commander in Cabo Delgado.
Eric Morier-Genoud, a researcher at Queen’s University Belfast, said any attack against the gas “majors” would be an “escalation from which the militants would come out the losers.”
“At this point... based on the information we have, we classify the attacks as an insignificant risk to the economy,” Rogerio Zandamela, the governor of Mozambique’s central bank, told AFP.
In contrast to this, the central bank did consider a spate of attacks carried out by a militia loyal to the main opposition Renamo party in the country’s center in 2015 and 2016 as an economic risk.
“There was much more clarity about the conflict in central Mozambique... We cannot equate the north with the south,” Zandamela said. “The information available on the conflict in Cabo Delgado is very limited.”
Police have stepped up security around gas projects — particularly those close to areas that have come under attack, national police spokesman Inacio Dina told AFP.
An official at Anadarko, who declined to be named, said “There have been no threats specific to our project. However, it is a cause for concern, and therefore, as operations continue, we have undertaken appropriate measures.”
The company has a gas operations camp in a forest on the Afungi Peninsula.
Police and army units have established a command post in the forest following the attacks.
But a source at Anadarko told AFP that the firm has also stepped up its own security efforts, increasing its private protection force by two-thirds — a move that will have an impact on costs.
Despite such problems, foreign investors for now still have a big appetite for a share of Mozambique’s gas treasures.
Japan’s Tokyo Gas and Britain’s Centrica inked supply deals with Anadarko on June 15 — just a day after a machete attack on the village of Ibu.
Even so, experts say the instability in the northeast could still prove costly. It could cut into the dividend that Mozambique expects from the huge find.
“(The gas projects) are at risk in their early stages, as attacks can adversely affect logistics. Materials must reach Palma by land,” said Maputo-based political science researcher Joao Pereira.
“The insurgency is most likely to delay rather than derail development of the sector,” said Ed Hobey-Hamsher, an analyst at global risk consultancy Verisk Maplecroft.
“Attacks will certainly make the investment more expensive because of security needs reducing revenues for the state.”