SanDisk Rejects Samsung's $6B Offer
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SEOUL/SAN FRANCISCO -- U.S. flash memory card maker SanDisk Corp (NASDAQ: SNDK) rejected a $5.9 billion bid by top memory chip maker Samsung Electronics, but would not rule out a deal at a better price.
Buying SanDisk would give Samsung advanced technology and a tighter grip on its market dominance as smaller rival Toshiba Corp is challenging its position and the industry battles steep memory price falls because of capacity overbuilding.
Samsung, which pays SanDisk over $350 million a year in royalties to use patented flash technology, is looking not only to slash those costs and but also gain control of SanDisk's many licenses that control the industry.
"With the offer, Samsung is eyeing an industry shakeup in the 4-5 year horizon. Samsung and SanDisk can work on technology and marketing together," said Park Hyun, an analyst at Prudential Investment & Securities.
SanDisk said in a statement that Samsung's $26-a-share cash offer -- an 80 percent premium to its Monday close -- undervalued the company, but it remained open to a deal with Samsung at a price that recognizes its "intrinsic value".
SanDisk shares soared 53 percent to $23 in extended trading on Tuesday U.S. time after Samsung went public with its bid following months of private talks that failed to produce a deal.
Samsung, South Korea's biggest stock, ended flat at 525,000 won on Wednesday, lagging the wider Seoul market's 2.7 percent gain.
When asked about whether Samsung could raise its bid, James Chung, a company spokesman in Seoul, said: "It is premature to comment on the matter." He called the bid "full and fair".
A deal around that level would be the biggest takeover by cash-rich Samsung, which has grown its business without resorting to big M&A deals. It will be also an unprecedented deal in the NAND industry which has seen many alliances but not a full acquisition of this scale.
SanDisk is the world's biggest maker of flash memory based-data storage cards. Analysts estimate SanDisk's flash card products consume up to 15 percent of the global NAND chip output, a large portion of them coming from SanDisk's joint plant with Toshiba in Japan.
Flash memory is a form of compact data storage, also used in a number of consumer gadgets, including digital cameras, cellphones and portable music players.
Samsung would also be able to secure SanDisk's advances in solid state drive (SSD), the flash-based technology that is likely to power most personal computer memory in a few years.
On Tuesday, Toshiba said it was open to a combination with SanDisk, but there were no concrete talks yet.
Toshiba, the world's No.2 NAND flash maker, and third-ranked Hynix Semiconductor Inc declined to comment on Wednesday on Samsung's offer.
BUILDING A STAKE?
Analysts said Samsung might buy SanDisk shares from institutional investors at the $26 offer price, building up a minority stake to put more pressure on its target.
"Given SanDisk shares have lost so much value since late last year, and the NAND flash market is suffering a downturn that is likely to last for a while, there must be some institutional investors who want to sell to Samsung (and exit the market)," said Park at Prudential.
"Samsung very likely has made some sort of arrangements with them before making the offer. Samsung could secure 20-30 percent of SanDisk initially, then work on raising its stake."
Writing to SanDisk CEO Eli Harari, Samsung CEO Yoon-Woo Lee said he was "deeply disappointed" that the Milpitas, Calif.-based company "continues to cling to unrealistic expectations on both its stand-alone market value and an appropriate merger price." The letter was provided by Samsung.
Based on 225 million SanDisk shares outstanding, a deal at $26 would be worth $5.85 billion.
"This is a huge premium," said Yoshiharu Izumi, a JP Morgan analyst. "It's not clear at this stage what kind of market share Samsung would be able to grab, if this bid goes through."
Samsung ranked No. 1 in the global NAND flash market in the second quarter with a 42.3 percent share, according to market research firm iSuppli, followed by Toshiba and Hynix, with 27.5 percent and 13.4 percent, respectively.
Harari called the offer opportunistic and said Samsung was trying to take advantage of the industry-wide downturn and SanDisk's depressed stock price, which lost 74 percent since its October peak as of Monday closing.
The company also said it was possible Samsung was trying to take advantage of ongoing licensing negotiations between the two firms, adding Samsung did not address SanDisk's concerns about stockholder protection in the event of a deal. SanDisk did not elaborate on this concern in its statement.
Samsung has hired JPMorgan Chase & Co (NYSE: JPM) and Allen & Co as its financial advisers, while SanDisk is advised by Goldman Sachs Group Inc (NYSE: GS) and Morgan Stanley (NYSE: MS).