Toshiba may delay chip auction after widening sale to majority stake - source

By Makiko Yamazaki and Taiga Uranaka

TOKYO (Reuters) - Toshiba Corp may delay the sale of its prized flash-memory chip unit after the conglomerate said it would consider selling most, even all, of the marquee business, a person with direct knowledge of the matter said.

"It's moving in that direction (of a delay)," the source said late on Wednesday, on condition of anonymity as the discussions weren't public. As Toshiba's plans for the sale have changed, "the bidders are having various thoughts."

The TVs-to-nuclear conglomerate is scrambling for cash to stay in business as a multi-billion-dollar hole has emerged in recent months in its nuclear business.

Toshiba shares sank 9 percent on Wednesday after the company said it would book a $6.3 billion hit to its U.S. nuclear unit and would consider selling more than the originally planned stake of less than 20 percent of the flash-memory chip business.

Changing the rules of the chip auction, which sources have said has generated bids of 200-400 billion yen ($1.8-$3.5 billion), could push the sale beyond Toshiba's planned deadline of the March 31 end of the business year, the source said.

Loosening the deadline would ease concerns about trying to hurry any antitrust reviews, increasing the number of potential buyers and potentially improving the offers, he said.

Toshiba has accepted that it may remain in negative net worth through the end of the business year, the source said, which could see its shares demoted to the second section of the Tokyo Stock Exchange. As a result, the source said, it would have to convince its lenders to keep the funds coming.

The result could also be a rethink of the whole auction as some bidders may now want management rights or have other responses to Toshiba throwing open the bidding to include a majority stake, he said.

The change of direction by Toshiba - facing a March 27 deadline to avoid a delisting - has prompted investors to question whether the company would have a long-term future without control of the unit and could well shake up the bevy of suitors interested in a piece of the world's biggest NAND chip producer after Samsung Electronics Co Ltd .

"Usually in a corporate turnaround plan, the company would keep its most competitive business after selling non-performing businesses," said Masayuki Kubota, chief strategist at Rakuten Securities.

"This turnaround plan gives no hope for Toshiba's future," he said.

Taiwan's Foxconn (2317.TW), formally known as Hon Hai Precision Industry Co Ltd, is among the companies and funds that were bidding for the smaller stake, a source with direct knowledge of the offer said, declining to be identified because he is not authorized to talk to the media.

Foxconn officials were not immediately available to comment.

Other bidders include SK Hynix Inc , Micron Technology Inc (MU.O) and private equity firm Bain Capital, sources have said previously.

Foxconn, which last year bought a controlling stake in Japanese panel maker Sharp Corp , may find it easier than other corporate bidders to buy a large stake as it is not a major memory chip maker and could avoid any lengthy anti-trust review.

WAIVER FAVOR

Toshiba's new openness toward selling more of its chips business comes as the beleaguered conglomerate failed to deliver audited third-quarter earnings as scheduled on Tuesday, saying it needed more time to look at potential problems at its Westinghouse division. The expected $6 billion writedown will also wipe out shareholders' equity.

It has been granted an extension until March 14 to submit audited figures but would face a delisting if it still failed to file within eight business days after that.

Wednesday's share slide left Toshiba with a market value of 889 billion yen ($7.8 billion), less than half its value in mid-December. Just under a decade ago, the firm was worth almost 5 trillion yen.

At a meeting with its creditors on Wednesday, Toshiba executives asked for an extension of a waiver for a loan covenant violation until the end of March, financial sources said, declining to be identified as they were not authorized to speak to the media on the matter.

Cuts to credit ratings after Toshiba warned in December of a large writedown put it in violation of one loan covenant, which could prompt lenders to call in loans early.

Toshiba's loans from banks and insurers stood at about 800 billion yen ($7 billion) as of end-September, a financial source has said. Sumitomo Mitsui Banking Corp and Mizuho Bank (8411.T) are its biggest creditors.

While the two lenders and the state-backed Development Bank of Japan Inc have so far expressed support for Toshiba, other creditors will need more convincing before they back Toshiba further, sources familiar with the matter have said.

Potential investors in Toshiba may also need to heed Japanese government concern about the future of a company its sees as strategically important.

($1 = 114.6000 yen)

(Reporting by Makiko Yamazaki and Taiga Uranaka; Additional reporting by Ayai Tomisawa and Kaori Kaneko in Tokyo, JR Wu in Taipei and Hyunjoo Jin in Seoul; Writing by Tim Kelly; Editing by Edwina Gibbs and Adrian Croft)