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Q&A - Twists and turns in Toshiba's chip business sale

By Makiko Yamazaki

TOKYO (Reuters) - Toshiba Corp <6502.T> is unlikely to seal a long-awaited $17.3 billion deal to sell its memory chip unit by its self-imposed deadline of Aug 31, as a last-minute offer on Wednesday left executives comparing rival offers with hours to go.

The following are key questions and answers on the protracted sale, why the delays matter and what comes next.

Q. What's going on with Toshiba's memory chip sale? A. A consortium including Western Digital (WDC.O), U.S. private equity firm KKR & Co (KKR.N), the state-backed Innovation Network of Japan and Development Bank of Japan is offering around 1.9 trillion yen ($17.3 billion) for Toshiba's chip business, according to people familiar with the talks.

The two sides are in final-stage discussions and had aimed to announce a deal on Thursday, when Toshiba's board meets. But they have yet to reach a deal.

Earlier talks with another bidding group, including private equity firm Bain Capital and South Korean chip maker SK Hynix <000660.KS>, broke down after Western Digital, which has investment in Toshiba's main chip plant, went to court to defend its right to consent to any sale.

Sources with knowledge of the matter said late on Wednesday that Bain had revised its offer to 2 trillion yen, including an investment from tech giant Apple (AAPL.O). Q. Why does Toshiba need to sell the chips unit, and why did it want a deal this week? A. Toshiba has been trying to sell the unit for months, in an attempt to pay down debt and cover the impact of over $6 billion in liabilities linked to U.S. nuclear arm Westinghouse.

Toshiba wants to close the sale by the end of the fiscal year in March to ensure it does not report negative net worth, or liabilities exceeding assets, for a second year running. This could result in a delisting from the Tokyo Stock Exchange.

That would be a dramatic blow to already bruised shareholders and make it tougher for Toshiba to raise money.

Given regulatory approvals could take months, the company had been hoping to reach a deal by end-August to ensure it can close the sale in time. Q. What is the Western Digital group offering? A. The consortium is offering around 1.9 trillion yen, with the U.S. firm offering 150 billion yen through convertible bonds, according to sources.

KKR and the two Japanese funds will offer 300 billion yen each, or 900 billion in total, the sources said.

Toshiba's lenders including Sumitomo Mitsui Banking Corp and Mizuho Bank would also extend a total of around 700 billion yen in loans, while other Japanese companies will also invest around 50 billion yen to ensure domestic firms hold a combined 60 percent stake, the sources said.

Toshiba is also expected to keep a 100 billion yen stake in the business, they said. Q. What is the rival bid? A. The Bain-led consortium has made a revised offer worth around $18 billion, bringing in Apple to help bolster the bid.

Bain and South Korean chipmaker SK Hynix Inc <000660.KS> will be responsible for 1.1 trillion yen, while Apple will provide up to 400 billion yen and Japanese banks will give around 600 billion yen in support, one of the sources said.

The proposal also calls for Toshiba to be part of the deal, investing 200 billion yen, the source said.

Bain will invite the state-backed investors - the Innovation Network of Japan (INCJ) and the Development Bank of Japan (DBJ) - to invest in the business only after any arbitration with Western Digital is settled, the source said.

Q. Are there any antitrust concerns? A. Western Digital is seeking to allay regulators' concerns by contributing funds through convertible bonds, avoiding taking an equity stake upfront.

In the rival bid, peer SK Hynix will also participate through financing.

But some analysts warn this does not mean regulators will give it an easy pass. Q. Why all the fuss to avoid a delisting? A. A delisting would complicate Toshiba's ability to raise money from markets or banks. Toshiba is already barred from issuing equity as a result of the 2015 scandal.

It would be the first major delisting in Japan for over a decade; even camera maker Olympus averted one in 2012, following a scandal around hidden losses.

(Reporting by Makiko Yamazaki; Writing by Ritsuko Ando; Editing by Neil Fullick)