NAND and SSD manufacturer Kioxia is preparing an IPO to recapitalize itself as payment of a ¥900 billion ($5.8 billion) loan is due in June.
The company is 56.24 percent owned by a Bain Capital-led private equity consortium and 40.64 percent owned by Toshiba. The Bain consortium bought its stake from Toshiba in 2017 for $18 billion. Kioxia is a joint venture with Western Digital to operate NAND foundries, with both WD and Toshina making SSDs based on the foundry-produced chips. A merger proposal between a spun-off Western Digital NAND/SSD business and Kioxia was thwarted when Bain consortium member and Kioxia shareholder SK hynix objected late last year.
The spun-off Western Digital company is coming into being because activist investor Elliott Management has convinced Western Digital’s board that its NAND/SSD business unit is undervalued by investors, which drags Western Digital’s stock price down. Splitting the company into separate and publicly listed disk drive and NAND/SSD businesses would drive their combined stock price above Western Digital’s current price, enabling Elliott and other shareholders to profit from the rise in value.
A merged Kioxia-Western Digital NAND/SSD business would take first or second place in the global market and be able to make more profit than the two separate businesses due to foundry and SSD production and supply efficiencies.
Now Reuters and Bloomberg are reporting that Kioxia needs to be recapitalized because the syndicated $5.8 billion has to be repaid or renegotiated. Kioxia revenues have been depressed by the multi-quarter NAND slump. It incurred a loss in its last financial year and is likely to do so again in the current one, which closed in March 2024. This could reduce its value below the ¥500 billion (approximately $3.2 billion) required by the syndicated loan terms, necessitating a renegotiation.
Kioxia expects to return to profitability in its next financial year, ending March 2025, as the NAND market picks up
Bain has suggested that Kioxia pursue an IPO to facilitate recapitalization, using the funds to repay the loan, and has been holding talks with the Sumitomo Mitsui, Mizuho, and Mitsubishi UFJ banks about this.
Such an IPO could pave the way to reopened merger talks with Western Digital’s NAND/SSD business unit. No one from Kioxia, Bain, or the banks involved responded to inquiries from Reuters and Bloomberg about the latest IPO talks.
