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Bain Capital’s ambitions to create a US-Japan chip champion through the merger of Kioxia and Western Digital are in jeopardy due to opposition from one of its key investors.
South Korea’s SK Hynix has refused to sign off on the deal in the final phase of merger negotiations, according to four people with direct knowledge of the talks.
SK Hynix was part of the Bain-led consortium that acquired Toshiba’s semiconductor unit, which was renamed Kioxia, for $18bn in 2018. The deal remains the biggest buyout in Japan by a private equity group.
Bain shelved plans to list Kioxia in 2020 due to the Covid-19 pandemic and geopolitical uncertainty created by deteriorating US-China relations, but it has worked to merge the Japanese group with its longtime manufacturing partner Western Digital.
A merger between the two companies would create one of the world’s biggest manufacturers of Nand flash memory chips at a time when the US and Japan are seeking to bolster their chipmaking capabilities over China.
But SK Hynix has pushed back due to concerns about whether the tie-up would be strong enough to compete against industry leader Samsung, according to two people close to the deal.
Kioxia’s biggest lenders are lining up a loan of ¥2tn ($13bn) to finance the merger this week, according to two people with direct knowledge of the talks, but the deal cannot go through without the approval from investors in the consortium.
Even if an agreement were reached with investors and the lenders, other people involved in the discussions have warned that it is at risk of being blocked by Chinese antitrust regulators.
Semiconductor deals have faced intense scrutiny. SoftBank’s $66bn sale of Arm to Nvidia collapsed last year due to concerns raised by regulators in the US, UK and EU.
Others within the consortium said there was no other alternative for Kioxia but to merge with Western Digital to survive in a fiercely competitive industry. SK Hynix agreed to buy Intel’s Nand memory business for $9bn in 2020, in a move designed to increase the company’s production capacity.
If the deal goes through, Western Digital would own 50.1 per cent of the combined group, whose headquarters would be located in Japan. The majority of the board members, including the president, would come from Kioxia, which would own 49.9 per cent of the merged entity, according to people close to the talks.
Shares in Western Digital fell on Tuesday after SK Hynix’s opposition to the merger was first reported by Nikkei, which also said the South Korean group sounded out SoftBank for a partnership in case the deal collapsed.
SK Hynix denied it had approached SoftBank and declined to comment further.
Kioxia declined to comment while Bain, Western Digital and SoftBank were not immediately available for comment.
Additional reporting by David Keohane in Tokyo
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