With Friends Like These…

Did you ever have a joint venture with someone and then they turned around and blocked its sale…and then sued you? Well, Toshiba can relate.

Due to serious financial difficulties, Toshiba is trying to sell off their stake of their very successful flash memory business to keep the rest of the company afloat. Western Digital, as a result of their acquisition of SanDisk last year, owns half of the joint venture that Toshiba is attempting to sell. Western Digital would prefer to buy out Toshiba’s share to strengthen their own position in the market, but they have struggled to keep up with the bidding as offers climb past ¥2T ($17.8B).  (Yep, Wow!)

Western Digital has asserted that the terms of their joint ventures with Toshiba require SanDisk’s approval before Toshiba can sell their stake, and Western Digital has not given their consent to any sale. This has not stopped Toshiba from continuing to negotiate a sale, so Western Digital has predictably taken legal action. In May, Western Digital began arbitration proceedings through the ICC International Court of Arbitration. Toshiba made a partial concession by rolling back the spin-off of some of the memory business assets they were preparing to sell, but their overall plan did not change and Western Digital was not placated. Earlier this month, Western Digital filed for an injunction preventing Toshiba’s sale until the arbitration was resolved.  (…just like a buddy would do.)

Ok, quick recap on the whole litany of legal stuff that’s happened since then —

  • At Toshiba’s shareholder meeting recently, they announced an agreement to sell the joint venture had not been reached. (sad face)
  • Toshiba claims that Western Digital is exaggerating their consent rights and also alleges that Western Digital has improperly obtained Toshiba trade secrets by transferring some employees from SanDisk to Western Digital whom have access to Toshiba confidential information through the joint ventures. (note: change your employment relationship status to “it’s REALLY complicated”)
  • Western Digital has responded by denying Toshiba’s allegations of improper handling of trade secrets, and claims that Toshiba has taken retaliatory action by cutting off some of Western Digital’s employees’ access to shared databases and facilities. Western Digital reaffirmed their intent to continue fully participating and investing in the joint ventures, and claimed to have not yet received the legal filings pertaining to Toshiba’s lawsuit in Tokyo.
  • Western Digital again claimed that the terms of their joint ventures requires that disputes be resolved through the arbitration process, making it clear they consider Toshiba’s lawsuit improper.

The WD/SanDisk request for an injunction in the California court is scheduled for a hearing on July 14. It appears that there will not be any quick resolution to this dispute unless Toshiba’s money troubles force them to accept Western Digital’s bid.

Always good to have friends. Not THESE kinds of friends of course, but more like the kind who won’t tie up your division sale in endless legal proceedings. Disputes happen to the best of companies and people. And when it’s YOUR turn, you’ll want to bring in a true friend and legal eagle like Dean Sperling who will get YOUR matter resolved with YOUR best interests in mind.
More on the case:

Joint Venture Dispute Between Toshiba and Western Digital Escalates, Toshiba Still Unable to Sell NAND Business