SanDisk rejects Samsung's $5.85B takeover offer
By Suzanne Deffree, Managing Editor, News -- 9/17/2008
SanDisk Corp has rejected an unsolicited takeover bid from rival NAND flash maker Samsung Electronics Co valued at approximately $5.85 billion.
The official offer at $26.00 in cash per share was made public on Tuesday, less than two weeks after rumors of such an acquisition began to spread.
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Korea-based Samsung first approached SanDisk about an acquisition on May 22, when the Milpitas, Calif-based company's stock (SNDK) closed at $28.75. SNDK closed at $15.04 Tuesday afternoon, before Samsung's offer was made public. Samsung's offer represented a more than 70% premium over SNDK's most recent closing price and a more than 55% discount on its 52-week high of $55.98.
"We believe Samsung's proposal does not provide appropriate value to our stockholders and is opportunistically timed at the trough of an industry-wide downturn," Eli Harari (pictured, left), Chairman and CEO of SanDisk, said in a statement Tuesday afternoon. "In our view, this proposal fails to recognize the value of our patent portfolio, in particular to Samsung, our significant investments in our strategic partnerships, and our technology leadership in 3- and 4-bits per cell flash memory, advanced controllers and three-dimensional semiconductor memory. We believe we have the strategy, execution record, innovation and financial resources to return to profitable growth and be the flash memory leader in new growth markets in mobile devices, solid state disk, and portable consumer electronics."
Analysts are split as to whether SanDisk's rejection of the offer was the right move.
"We were very disappointed and surprised by SNDK’s dismissal of the offer and believe SNDK’s board of directors’ are looking in the rearview mirror through rose colored glasses by viewing the offer as a 55%-plus discount to the stocks 52-week high," Betsy Van Hees, VP of technology equity research at Caris & Company, said. "The stock was up significantly in after hours trading, however."
Indeed, SNDK was up more than 39% today, closing at $20.92.* SNDK hasn't closed at or above $21 since June 20 and hit its 52-week low of $13.62 on July 22.
"We think upside from this level is limited and we are concerned that the potential for downside risk to the stocks current level is high given the weakening fundamentals of the NAND market and our belief that an immediate counter bid from Samsung or competing bids from Toshiba or Seagate are unlikely," she said.
Conversely, Objective Analysis Analyst Jim Handy believes that SanDisk has plenty of reason to expect its stock price to rebound to or even rise above its 52-week high.
"Although the stock market is highly disenchanted with the memory markets today, those who understand the nature of semiconductor cycles realize that once demand rises to absorb all of today’s overcapacity, which indeed it will, prices will firm, profits will resume, and stock prices will soar. Nothing significant has changed," said Handy (pictured, right). "Unless SanDisk were to mismanage its business very badly, their stock price in a year’s time could very well be higher than their current 52-week high of $56. SanDisk is an excellently managed company, and they continually adjust their operations to assure that the company will survive this cycle as they have all prior cycles."
If the offer had been accepted, Samsung would have ended the between $400 million and $500 million annual flash memory patents royalty payments it makes to SanDisk. Such a deal would also tighten the NAND flash market, allowing Samsung more control over ASPs (average selling prices).
"SanDisk is in the midst of negotiations with Samsung to renew patent licenses under which Samsung is paying SanDisk hundreds of millions every year," Handy said. "Should Samsung succeed in this acquisition, Samsung will be in a position to receive a similar royalty stream, and to perhaps grow that stream to something significantly larger than SanDisk’s current royalty revenue. … SanDisk not only owns a large share of the intellectual property covering 2-bit MLC, but they appear to be the only company to own 3-bit and 4-bit IP, and are likely to profit handsomely from this position over the next two years."
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That statement is in line with recent data from iSuppli Corp. The research company in mid August lowered its 2008 NAND annual flash revenue growth forecast from 9% to "virtually zero." Today, however, iSuppli said it expects a 3% decline in growth on intense competition and the slowdown of the economy.
According to data from iSuppli, Samsung was the world's leading supplier of NAND-type flash memory in Q2, with $1.4 billion in NAND revenue for a 42.3% share of global revenue. Samsung was also the only profitable NAND supplier during the quarter, due to its diverse product line, iSuppli reported. Meanwhile, SanDisk was the leading seller of flash memory storage cards in the United States in Q2 with a 33.8% share of retail revenue, according to the research company's data.
*Editor's note: This story was updated at 5pm eastern to reflect SNDK's closing price.
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