Toshiba Settles Fight With Western Digital That Imperiled a Major Deal

TOKYO — Toshiba has cleared one of the last remaining hurdles to a planned sale of its microchip subsidiary and moved a step away from the financial brink.

The struggling Japanese conglomerate said Wednesday that it had settled a legal dispute with Western Digital, the American data storage company, that threatened to block the microchip deal. Toshiba is counting on the sale to bring in about $14 billion in much-needed cash after its losses on nuclear power projects in the United States left its finances in tatters.

Toshiba and Western Digital said Wednesday that they had agreed to withdraw a cluster of lawsuits and arbitration claims over the deal that they had filed against each other. Under that deal, Toshiba plans to cede a majority stake in the chip subsidiary to a group of investors led by the investment firm Bain Capital.

“With the concerns about litigation and arbitration removed, we look forward to renewing our collaboration with Western Digital,” Yasuo Naruke, Toshiba executive vice president and chief executive of the microchip unit, Toshiba Memory Corporation, said in a statement.

He added, “Toshiba also remains on track to complete our transaction with the consortium led by Bain Capital.”

Toshiba signed a deal in September, after months of tumultuous negotiations, to sell 60 percent of Toshiba Memory Corporation to the Bain-led group, whose members also include Apple and other technology companies that rely on Toshiba’s NAND flash memory chips to make their products.

Toshiba has bet its future on the sale.

Its American nuclear subsidiary, Westinghouse Electric, sought bankruptcy protection in March after delays and cost overruns at two nuclear-plant projects in the United States cost Toshiba $6 billion in write-offs, rendering it insolvent. Toshiba’s banks have been keeping it afloat, but the company needs cash to repair the damage more permanently.

Western Digital, through its subsidiary SanDisk, shares control with Toshiba of flash memory production operations in Japan. The American company also made a bid for Toshiba Memory Corporation, but it lost out to the Bain group.

Western Digital believed it had a trump card that would allow it to outmaneuver Bain: It contended that, under the terms of its joint venture contracts with Toshiba, Toshiba needed its approval to sell the microchip unit. Western Digital turned to the courts to press that claim, but Toshiba responded by suing Western Digital in return, saying it was unfairly interfering with the sale.

The prospect that Western Digital’s legal challenges might derail the sale to Bain was daunting for Toshiba, but Toshiba possessed leverage of its own. It announced in October that it would expand flash memory production capacity in Japan without Western Digital’s participation, potentially restricting Western Digital’s access to an important source of advanced memory drives, which it needs in ever greater numbers to supply its own customers.

Toshiba raised 600 billion yen, or around $5.3 billion, in short-term funding to sustain it in case the sale to Bain was delayed. It is supposed to be completed in March, though antitrust regulators in several countries must still give approval.

Under the agreement reached on Wednesday, Toshiba and Western Digital said that they would maintain their joint venture arrangement until at least 2029 and that Western Digital would have the option of investing in the capacity expansion in Japan, giving it access to additional flash memory supply.

Western Digital’s chief executive, Stephen D. Milligan, said his company’s “core priorities” were to protect the Japanese joint venture with Toshiba and “ensure their success and longevity.”