ANALYSIS: De Facto Public Bailout of Toshiba Draws Controversy

Tokyo, June 24 (Jiji Press)--The Japanese government's wishes were behind Toshiba Corp.'s

selection this week of an international consortium led by a Japanese state-backed investment fund as its preferential negotiating partner on the planned sale of its Toshiba Memory Corp. unit. Before announcing the decision on Wednesday, Toshiba was waiting for an outline of a consortium led by Innovation Network Corp. of Japan to be mapped out under the government's initiative, making its open bidding process on the sale a mere facade. INCJ did not participate in either the first bidding round in March or the second in May, while continuing behind-the-scenes talks with existing bidders with potential to join the consortium, such as U.S. private-equity firms Kohlberg Kravis Roberts & Co. and Bain Capital. Concerned about possible leaks of Toshiba's flash memory technology especially to China, the Japanese government initially mentioned the possible use of the foreign exchange law to prevent the Toshiba unit from being sold to Taiwan's Hon Hai Precision Industry Co., which operates in mainland China, or other foreign companies. Last year, Canon Inc.

won the race to acquire Toshiba's medical equipment unit, Toshiba Medical Systems Corp. For the flash memory unit, however, the government saw no bids from major Japanese companies. The situation left the government with little choice but to mobilize INCJ and another state-affiliated body, the Development Bank of Japan. At the same time, the use of the two bodies has led effectively to a taxpayer-financed bailout of the struggling electronics and machinery maker. A public bailout of a flash memory device maker is believed to involve considerable risk. In 2009, public funds were injected via the DBJ into flagging Japanese chipmaker Elpida Memory Inc., which nevertheless collapsed later. Japan Display Inc.

, meanwhile, has received investment from INCJ, but the major liquid crystal display maker is now at the brink of collapse. Unlike such Japanese companies that sought refuge in public turnaround sponsorship, Sharp Corp.

chose to survive under the umbrella of Hon Hai last year, declining an offer from INCJ. Sharp is slated to file with the Tokyo Stock Exchange later this month for the return of its shares to the TSE first section. The move comes less than a year after Sharp shares were demoted to the second section. Some industry sources said the government's concerns about technology leaks overseas are irrelevant, given the advanced international division of labor. South Korea's Samsung Electronics Co., which leads the global flash memory industry, has its main factory in China, and its customers include Japanese firms.Copyright JIJI PRESS LTD.