San Francisco, Tokyo: Toshiba Corp and Western Digital Corp are close to settling their legal dispute under an agreement that the US company will drop efforts to block Toshiba’s $18 billion (Dh66 billion) sale of its flash-memory business in exchange for the extension of their joint venture agreements, according to people familiar with the matter.

Western Digital plans to end arbitration claims in the US to stop Toshiba from selling the chip business to a consortium led by Bain Capital as part of the settlement, said the people, asking not to be identified because the matter is private. The US company would get guaranteed supply of newer chips from a more advanced plant in Japan being built by Toshiba that it will invest in. The two sides still have to work out several key details and it’s possible a final deal will not be reached, the people said.

The partners have been locked in a fierce legal battle since early this year after Toshiba said it would sell the chip business to pay for enormous losses in its US nuclear business. The US company had argued Toshiba needed its consent to sell the business, an assertion the Japanese company disputed. The Japanese company needs to raise capital to avoid seeing its shares delisted from the Tokyo Stock Exchange.

Toshiba didn’t immediately provide comment. Western Digital declined to comment.

Toshiba has stepped up pressure on Western Digital in recent weeks. This month, the Tokyo-based company said it will accelerate investments in its new Fab 6 chip facility in Yokkaichi, blocking Western Digital from participating and raising the prospect the US company wouldn’t get supplies of newer chips that it will need to remain competitive. Toshiba also unveiled plans to raise 600 billion yen in a stock sale, a deal that will help it avoid delisting even if the chip business sale isn’t completed on time.

Western Digital has suffered in the meantime. Its shares have dropped 15 per cent this week as research firms including Morgan Stanley have expressed concern about its outlook.

Operating income

Toshiba’s earnings results this month underscored the importance of the semiconductor unit. Profit in the memory business quadrupled to 205 billion yen in the first half of the fiscal year, helped by demand for data storage in smartphones and solid state disks. The division accounted for 88 per cent of the company’s operating income.

Toshiba said this month that spending on the chip business will total 600 billion yen in the year ending March 2018, 50 per cent more than previously planned. Toshiba and SanDisk Corp., which was acquired by Western Digital last year, have until now split most of the spending. The Japanese company has asked SanDisk whether it intends to participate, according to a statement at the time.

“The relationship we have with Toshiba and TMC is critically important for both companies,” Western Digital Chief Executive Officer Steve Milligan said at the Nikkei Global Management Forum in Tokyo this month, referring to Toshiba’s memory unit by its initials. “I can assure all of you that we are fully committed that it carries fully into the future.”