US judge pauses quest to block sale of Toshiba chip unit

San Francisco : A California judge put on hold Friday a request by Western Digital to block the sale of Toshiba's chip division, suggesting a more collaborative order.

San Francisco Superior Court Judge Harold Kahn gave Toshiba and Western Digital until a July 28 hearing to draft an order requiring the Japanese company to give its Silicon Valley partner two weeks' notice before closing a sale of the division.

In the meantime, the court ordered Toshiba to not complete the sale.

Toshiba lawyers have contended in court documents that selling to the high bidder interested in the chip division was not expected to close until early next year at the earliest.

The hearing was held to consider a request by Western Digital for an injunction stopping Toshiba from selling interests in three NAND flash-memory joint ventures operated with Western Digital's SanDisk subsidiaries.

"Our entire goal was to preserve and protect our rights through the binding arbitration process, and that's precisely what the court has done today," Western Digital chief executive Steve Milligan said in a released statement proclaiming the outcome of the hearing a victory.

Toshiba was free to continue negotiations for the sale of the chip division as the matter made its way to likely arbitration in an international forum.

Kahn proposed a "finessed" alternative to the injunction sought by SanDisk that preserves legal options of both sides without stalling sales discussions, according to Toshiba.

Executives at crisis-hit Toshiba faced hundreds of angry shareholders last month as the firm announced it has not yet clinched a deal to sell its prized chip business to a consortium of US, Japanese and South Korean investors.

The sale, reportedly worth about 2.0 trillion yen ($18 billion), is seen as crucial for the cash-strapped company to plug massive losses at its US nuclear division, Westinghouse Electric.

Toshiba said it had entered into exclusive talks with the public-private Innovation Network Corp. of Japan, state-backed Development Bank of Japan and US private equity fund Bain Capital, with South Korean chipmaker SK Hynix acting as a lender.

Toshiba is the world's number-two supplier of memory chips, behind South Korea's Samsung.

The sale involving state-backed buyers means the Japanese government will effectively own the chip division. 

The profitable division has accounted for about one-quarter of Toshiba's total annual revenue.

The chip unit sale is seen as key to Toshiba's turnaround. Western Digital, which jointly runs a key chip plant in Japan, opposes the sale.

Toshiba's chief executive has blasted the US firm's bid for a court injunction as "unfair interference."

Toshiba later said it has filed a 120 billion yen ($1 billion) lawsuit against its US partner over the disputed deal.