Toshiba settled legal disputes with US production partner Western Digital, both firms said Wednesday, clearing the way for the embattled Japanese conglomerate's multi-billion-dollar sale of its prized chip business.

Toshiba has been on the ropes after the disastrous acquisition of US nuclear energy firm Westinghouse, which racked up billions of dollars in losses before being placed under bankruptcy protection.

In order to survive and avoid a humiliating delisting from the stock exchange, Toshiba decided to sell its coveted chip business to a consortium led by Bain Capital.

But US chipmaker Western Digital, which has been engaged in joint production with Toshiba in Japan, opposed any sale to a third party without its consent and launched a series of legal actions.

That sparked counter-litigation by Toshiba, spawning fears the much-needed sale for the cash-strapped group could be derailed.

On Wednesday, they said in a joint statement they "have entered into a global settlement agreement to resolve their ongoing disputes in litigation and arbitration, strengthen and extend their relationship, and enhance the mutual commitment to their ongoing flash memory collaboration".

In addition to dropping its lawsuit, Western Digital will jointly invest in a new chip-manufacturing facility in central Japan.

The US firm said its initial commitment was expected to be about $950 million, mostly for equipment and start-up costs to be incurred primarily through 2018.

Western Digital is also expected to invest in another factory planned in northern Japan.

Toshiba's chip unit brought in around a quarter of the group's total annual revenue and was considered the crown jewel in a vast range of businesses ranging from home appliances to nuclear reactors.

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