Toshiba (TYO:6502) is suing Western Digital (NASDAQ:WDC) for 120 billion yen ($1.1 billion) in damages. The suit also seeks to prevent the company from interfering with the sale of their chip unit.
Toshiba filed the suit on Wednesday in Tokyo District Court. The company aims to stop Western Digital from claiming ownership over its chip unit. Western Digital is trying to sell that unit. The company says employees at Western Digital obtained proprietary information it was not supposed to have.
Western Digital last month invoked an arbitration clause in the business agreement between the two companies. The move is an attempt to prevent Toshiba from transferring ownership of its chip unit to another entity in preparation of a sale.
“A problem for many businesses is that a very large percentage of contracts leave some issues unclear and some circumstances not addressed,” says Phillips & Mille Co, a law firm that specializes in business litigation and contract law.
Long Term Prospects
But lack of clarification may wind up costing investors in the long run. The legal spat between these two companies is not likely to see a quick resolution. Toshiba says Western Digital is interfering with its sale. Additionally, the company will face antitrust issues because it owns Sandisk.
Toshiba was hoping to present shareholders with a signed deal at its annual meeting on Wednesday.
“Once again, I apologize deeply from my heart for causing so many problems,” said Satoshi Tsunakawa, Chief Executive of Toshiba.
Toshiba has selected its preferred buyers for its chip unit, which is plans to sell in order to recover from accounting irregularities and soaring losses from its nuclear power projects.
The company is aiming to sell its chip unit to one of the following: Innovation Network Corporation, an investment fund controlled by the Japanese government; Bain Capital, a U.S.-based buyout firm; or Development Bank of Japan, a government-owned bank. SK Hynix, a South Korea-based technology company, will finance the deal.
“We are continuing to negotiate with the consortium, but coordinating with its various members is taking time, and we have not reached an agreement,” Toshiba said in a statement on Wednesday.
Western Digital is reportedly offering Toshiba less money than the consortium it prefers. The company will be forced to either take the lower offer, or risk a lengthy legal battle.
Western Digital has petitioned a California court to block the sale and is pursuing arbitration in the International Court of Arbitration. There will be a hearing on July 14.