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Samsung withdraws $5.85B bid for SanDisk, but analyst suggests interest remains
A poor Q3, planned layoffs, and a hurried capacity deal with rival Toshiba encourage Samsung to withdraw its $26 per share bid for flash maker SanDisk. One analyst suggests the matter may not be put to rest, however, and that Samsung may come back with a lower bid as SanDisk's stock continues to plummet.
By Suzanne Deffree, Managing Editor, News -- Electronic News, 10/22/2008
As SanDisk Corp's stock sinks lower and lower, Samsung Electronics Co has withdrawn its $26 a share bid for the memory maker.
Samsung's unsolicited $5.85 billion bid was made public in September, when SanDisk's stock (SNDK) was trading around $15. Analysts noted at the time that if the acquisition attempt was successful, Samsung would be relived of the between $400 million and $500 million annual flash royalty payments it makes to SanDisk.
SanDisk rejected the bid that same month, claiming it significantly undervalued the company given the long-term prospects of its business and calling the bid an "opportunistic attempt to take advantage of SanDisk's current stock price."
In a statement today, the Milpitas, Calif-based company said: "From the start of this process SanDisk's board has remained open to a transaction that recognizes SanDisk's long-term value and contains the right protections for SanDisk's shareholders. We repeatedly outlined a clear path to hold further discussions, including most recently in our letter on September 15, and Samsung consistently chose to ignore that path and, in fact, never contacted SanDisk regarding their proposal after we delivered our letter. We believe this raises questions about the real motivations behind Samsung's offer."
The withdrawal follows a capacity reallocation by SanDisk earlier this week. In a move that will see it gain a cash infusion and reduce its lease obligations by approximately $1 billion, SanDisk initiated plans to sell its partner and Samsung rival Toshiba Corp approximately 30% of the current manufacturing capacity from the two companies' joint ventures, Flash Partners and Flash Alliance. Unexpectedly, the announcement drove SNDK down in trading.
"Samsung certainly noticed that even an obscure move by SanDisk caused SanDisk’s share price to fall," Jim Handy (pictured), an analyst at Objective Analysis, said in a research note this morning. "Although there are polar disagreements about SanDisk’s motive for restructuring its JV [joint ventures] with Toshiba, the stock market’s response drove SanDisk’s share price from around $16 to around $14 even though SanDisk will be improving their cash position with this agreement. Keep in mind that the initial offer by Samsung made SanDisk’s price jump from $13.50 to $21. It appears that most traders feel that SanDisk’s value without Samsung is far lower than it is with Samsung."
SNDK, like many stocks this morning on fear of a deep recession, was trading down. Falling almost 30% by 9:54am eastern, SNDK was prices at $10.40. SNDK's recorded 52-week low as of Tuesday was $13.06.
The stock dive also followed on SanDisk's disappointing Q3 report, which came in below some analysts' expectations with a larger loss than expected. The results also came with news of capex reductions and planned product line cancellations or exits that will result in job cuts at the memory maker.
"I continue to believe that a combination of our two companies would have created a superior global brand, an unparalleled technology platform, and the scale and resources to drive convergence in the marketplace. Had we been able to execute on our proposal, your shareholders would have received full, fair, and certain value for their shares and your employees and other stakeholders would have benefited from a broader platform and a wider range of opportunities," he wrote.
"Nevertheless, we have obligations to our own shareholders which require that we take a disciplined approach, particularly with respect to significant initiatives such as this. That disciplined approach requires that we squarely face the growing uncertainties in your business, which may continue to deteriorate in this difficult economic environment and further impact your standalone value," Lee continued.
"Your recently announced third quarter results serve only to illustrate this risk. Your surprise announcements of a quarter billion dollar operating loss, a hurried renegotiation of your relationship with Toshiba, and major job losses across your organization all point to a considerable increase in your risk profile and a material deterioration in value, both on a stand-alone basis as well as to Samsung. As a result of these developments, we are no longer interested in acquiring SanDisk at $26/share," Lee concluded.
Still, Handy suggested the dealings may not be closed.
"This has so far been quite a melodrama, and we anticipate further very significant announcements before the matter is put to rest. With this there will probably significant share price shifts at SanDisk," he said, reminding that he is not a financial analyst.
"This is good for Samsung. Samsung’s stockholders will be rewarded if the company can acquire SanDisk at the lowest possible price. Today’s announcement should help Samsung push SanDisk’s share price lower, making it possible to acquire the company at a better deal than the $26 per share that Samsung previously offered," Handy said.
Samsung did not return calls from Electronic News for further comment.
