Exclusive: Toshiba flips back towards Western Digital group for chip unit sale - sources

By Kentaro Hamada and Taro Fuse

TOKYO (Reuters) - Toshiba Corp is shifting back toward selling its prized semiconductor unit to a group backed by joint venture partner Western Digital Corp , people familiar with the deal said.

Just days ago the Japanese firm said it was leaning toward a rival bid for the $18 billion business that includes a South Korean chipmaker.

California-based Western Digital made key concessions to assure Toshiba it would not seek future control of the chip business, addressing antitrust concerns, said the sources, who asked not to be named as the discussions are private.

That had turned the tide away from the bid led by U.S. private equity firm Bain Capital LP and SK Hynix Inc .

Toshiba board members are to meet Wednesday, but it was unclear whether they could reach a decision, after saying last Wednesday the company was accelerating talks with the Hynix group.

That announcement marked the third time Toshiba had missed targets to sell the business - the world's second-biggest producer of NAND memory chips.

The company needs the cash to plug a giant hole in its finances left by its bankrupt U.S. nuclear unit Westinghouse Electric Corp.

Toshiba and SK Hynix could not be reached outside business hours. A Western Digital spokesman declined comment. Bain Capital did not immediately respond to a request for comment.

Western Digital's refusal to relinquish future ownership rights in the chip business has hindered a sale, while the rival Hynix-Bain bid was hampered by legal challenges from Western Digital, made on grounds that it would infringe Western Digital's rights in the venture with Toshiba in central Japan.

The U.S. company conceded to giving up voting rights in the NAND memory business, boosting the bid it had sought along with U.S. private equity firm KKR & Co LP and Japanese government-backed investors including the Innovation Network Corp of Japan.

In the latest proposal, worth about 2 trillion yen ($18 billion), INCJ would take the lead, including a 300 billion yen equity investment, the sources said.

INCJ declined to comment. KKR didn't immediately respond to a request for comment.

Toshiba needs cash by March to prevent it from being delisted from the Tokyo Stock Exchange. On top of that, the semiconductor business requires huge amounts of investment, and Toshiba's chip unit runs the danger of losing its competitive ability as rivals roll out big capital spending plans.

(Reporting by Kentaro Hamada, Taro Fuse and Makiko Yamazaki in Tokyo; Additional reporting by Liana B. Baker in San Francisco; editing by William Mallard and John Stonestreet)