Why Samsung's attraction to SanDisk won't cool anytime soon

Analysts aren’t expecting Toshiba or Seagate to counter Samsung’s $5.85 billion bid for SanDisk, but don’t count the unsolicited offer as Samsung’s last. (See our news story, "SanDisk rejects Samsung’s $5.85B takeover offer.")

Thanks to 2006 budgets driving capacity up, NAND is still experiencing significant overcapacity, pushing ASPs (average selling prices) and therefore earnings and stock prices of market participants down, down, down.

Not only does SanDisk play in NAND, but its based in Milpitas, Calif. US-based companies are somewhat of a bargain right now, as the weak dollar has created a buy market for foreign companies.

But just because Samsung wants SanDisk, and even if SanDisk decides it wants to be folded into Samsung’s empire, it doesn’t mean the deal would go through. The US Department of Justice would surely step in considering that together Samsung and SanDisk shipped about half of the world’s NAND in 2007 and that such a deal would give Samsung substantial power over NAND ASPs.

And if such a deal does go through, companies like Apple won’t exactly be cheering. Cheap NAND has allowed Apple to keep its iPod and iPhone prices relatively low. Look back at teardowns done on previous generations of the consumer gadgets; the increased memory is largely what increased prices in the Apple lines.

Samsung knows all of this and it’s not uncommon for a competitor to come back with a slightly more substantial takeover offer for a rival company. Vishay’s second attempt to buy IR stands as evidence. After IR gave Vishay’s $1.6 billion offer a thumbs down, the power IC company came back with a $1.7 billion offer.  Of course, it also is not uncommon for the smaller company to turn down the raised offer, just like IR did this week.

By the way, SanDisk turned down the offer of $26 cash per share because it felt the price undervalued its potential and that it needs time to climb back up to its $55.98 52-week high. News of the Samsung bid helped SanDisk’s stock, SNDK, make some gains today. SNDK climbed more than 39% from Tuesday’s close of $15.04 to above the $20.92 at closing bell.

What are your thoughts on the proposed takeover? Is Samsung undervaluing SNDK? And even if Samsung is, should SanDisk’s stockholders take the money and run? Share your opinions below.

–Suzanne Deffree, Managing Editor, News