Western Digital to Buy SanDisk in $19B Deal
Hard disk drive maker Western Digital (NASDAQ:WDC) said it would buy memory chip maker SanDisk (NASDAQ:SNDK) for about $19 billion, giving it better access to flash memory storage chips used in smartphones and mobile devices.
SanDisk's shares rose to $78.76 in premarket trading, but were well below the cash-and-stock offer of $86.50 per share.
Shareholders are probably disappointed because they were likely looking for a 52-week high takeout price, Wedbush Securities analyst Betsy Van Hees said.
The semiconductor industry has seen a record number of deals this year as demand for cheaper chips and products to power Internet-connected gadgets push technology companies to consolidate suppliers.
Analysts have said while Western Digital is a major player in the traditional storage industry, it needs access to SanDisk's NAND technology to better compete in the solid-state drive (SSD) market. SSDs are used in cloud computing, data centres, smartphones and laptops.
The value of the transaction depends on the closing of an investment from Unisplendour Corp Ltd, a unit of China's state-backed Tsinghua Holdings Co Ltd, in Western Digital.
The deal is expected to draw intense scrutiny from both U.S. and Chinese regulators as accusations of cyber snooping increase between the two countries.
If the Unisplendour investment closes before the SanDisk acquisition, Western Digital will pay $85.10 in cash and 0.0176 of its shares for each SanDisk share held, the companies said on Wednesday.
However, if the Unisplendour investment does not close or is terminated, Western Digital will pay $67.50 in cash and 0.2387 of its shares for each SanDisk share held.
SanDisk may also need Toshiba Corp's approval to consummate the deal, as it uses the Japanese conglomerate's foundries for making chips, apart from having an important intellectual property-sharing joint venture.
The JV with Toshiba will be ongoing, Sandisk and Western Digital said in a statement.
The deal is expected to add to Western Digital's adjusted earnings within the first 12 months of its closing.
The company said it expected to enter into new debt facilities totalling $18.4 billion, including a $1.0 billion revolver, a portion of which will be used to fund the deal.
Western Digital's shares were down 2 percent at $73.25 in premarket trading.
BofA Merrill Lynch and J.P. Morgan are lead financial advisers and Credit Suisse is also advising Western Digital. Cleary Gottlieb Steen & Hamilton LLP and Baker & McKenzie are legal advisers to Western Digital.
Goldman Sachs is the financial adviser to SanDisk. Skadden, Arps, Slate, Meagher & Flom LLP is its legal adviser.
(Reporting by Abhirup Roy and Devika Krishna Kumar in Bengaluru; Editing by Don Sebastian and Anil D'Silva)