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November 1, 2006 12:38 am

Toshiba spins off semiconductor wafer unit

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Toshiba is to spin off its semiconductor wafer business in Japan’s second-largest management buy-out this year, backed by the Carlyle Group and Unison Capital, the private equity groups.

The US and Japanese private equity groups are offering Y600 a share, a 23.4 per cent premium to Toshiba Ceramic’s average closing price over the past six months.

The deal, valued at Y91bn ($778m), is unusual among Japan’s large conglomerates and highlights the gradual acceptance of MBOs as an acceptable strategy among Japan businesses.

It follows the MBO of Skylark, a family restaurant chain, which was the largest this year at Y271.8bn.

It also highlights the small but increasing role of private equity in Japan, which has attracted a growing number of private investors looking for similar deals.

Toshiba will offload its 40.40 per cent stake in Toshiba Ceramics, which makes semiconductor wafers and semiconductor manufacturing equipment, to SIC, a partnership owned equally by Carlyle and Unison.

The deal values Toshiba Ceramics at 8.6 times earnings before interest, tax, depreciation and amortisation of Y13.7bn.

Toshiba, which recently paid $4.158bn for a 77 per cent stake in Westinghouse, the nuclear power group, will post a gain of Y15bn from the sale of its stake in Toshiba Ceramics. The electronics conglomerate said the deal would increase the value of its subsidiary and facilitate its further development.

Toshiba Ceramics, which will continue to supply Toshiba with silicon wafers, is expected to raise Y140bn in funds to expand capacity and remain competitive.

The company had trailed competitors, such as Shin-Etsu Chemical and Sumco, in upgrading its facilities.

UBS, which also advised Skylark on its MBO, acted as sole financial advisor to Toshiba.

Separately, Toshiba said net profits in the first half more than doubled to Y38.8bn from Y14.6bn on higher revenues of Y3,162bn due to strong contributions from electronic devices, such as semiconductors, social infrastructure equipment, such as nuclear power plants, and home appliances. Sales of assets also contributed.

However, digital products posted an operating loss of Y7.6bn despite higher revenues due to downward pricing pressure on its PCs and yen depreciation.

Toshiba revised up its full-year forecast and is expecting sales to be Y6,750bn rather than Y6,600bn as previously forecast and net profit to be Y110bn rather than its previous estimate of Y90bn.

In contrast to Toshiba’s buoyant performance, Hitachi posted a net loss of Y78bn on higher revenues of Y4,770bn due to losses in its electric power system, digital media and consumer equipment divisions.

The company is forecasting a Y55bn net loss for the year.

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