Western Digital says Toshiba chip unit sale violates joint venture contract

Western Digital Corp has warned Toshiba Corp <6502.T> that splitting off its chip unit prior to a planned sale of the business violates their joint chip venture contract and that it wouldn't sit idly by while Toshiba runs roughshod over its rights.

Western Digital, which operates a chip plant with Toshiba in Japan, said the split-off is "very serious breach of joint venture agreements," according to a letter sent by the California-based company to Toshiba and seen by Reuters.

The objection is likely to complicate the sale of the prized unit - the world's second-biggest producer of NAND chips which Toshiba has valued at around $18 billion.

A spokeswoman for Toshiba was not immediately available to comment.

Western Digital also said that the auction process was not in the best interests of Toshiba stakeholders and that it wanted to enter into exclusive talks with the Japanese conglomerate.

Rumored bids of between 2 trillion yen to 3 trillion yen ($18 billion to $27 billion) were well above the fair and supportable value of the chip business, it added in the letter which was dated April 9.

It also said that each of the rumored bidders are highly problematic for both Japan and the joint ventures and specifically named Broadcom Ltd , saying that it had grave concerns based on recent commercial dealings with them.

Toshiba, which expects to book an annual net loss of 1 trillion yen ($9 billion) for this business year on a writedown at nuclear unit Westinghouse, has said it is selling most or even all of the chip business to help cover the charges and create a buffer for future losses that threaten the conglomerate's future.

($1 = 109.7100 yen)

(Reporting by Makiko Yamazaki; Additional reporting by Tim Kelly; Editing by Edwina Gibbs)