Western Digital shareholders supportive of SanDisk deal; Unisplendour committed on stake investment
Western Digital (NASDAQ: WDC) investors are supportive of the proposed acquisition of SanDisk (NASDAQ:SNDK) despite the recent stock plunge and uncertainties surrounding the stake investment from Unisplendour, said four Western Digital shareholders.
On 21 October, the Irvine, California-based maker of hard-disk drives (HDD) announced it would acquire SanDisk, the Milpitas, California-based flash memory chip provider, in a cash-and-stock transaction valued at approximately USD 19bn.
The cash component used to fund the acquisition is contingent on whether Western Digital can secure a USD 3.78bn equity investment from Unisplendour. The China-based company agreed to purchase newly issued Western Digital common stock at a price of USD 92.50 per share.
However, Western Digital’s shares have tumbled about 24% since the beginning of the year, extending its decline of almost 40% since the SanDisk deal announcement. Shares are currently trading around USD 44.00.
A person close to Unisplendour said the company has signed a binding agreement with Western Digital, in which the purchase price had been set. Unless the two companies have any new agreement on stake purchase price through negotiation, the price would not be changed and Unisplendour is committed to complete the deal, this person noted.
The person added that he is not aware of any negotiations to reset the purchasing price.
Hypothetically, if the Unisplendour investment falls apart, Western Digital will need shareholder approval to issue shares required to fund the SanDisk acquisition. Three of the shareholders interviewed by this news service are confident that the vote will come through.
The process of receiving shareholder approval will likely require a better explanation of the synergies in the transaction, the first shareholder said, “I think shareholders will find it very compelling.”
Western Digital is buying SanDisk below the replacement cost of the foundry, and it could not build the foundry without SanDisk’s intellectual properties, this first shareholder continued.
Buying SanDisk is a natural hedge on the declining hard-disk drive business which is being replaced by solid-state drives, the second shareholder said. Vertically integrating NAND flash supply will save the company 20% on gross margin, he added.
Western Digital needs SanDisk, which has state-of-the art technology when compared to Micron (NASDAQ:MU), another major memory chip maker, the third shareholder said. Micron produces random-access memory, flash memory and solid-state drives.
Shareholders referred to the declining stock price of Seagate (NASDAQ: STX), a rival hard-disk drive provider, and the sharp fall of many PC-exposed stocks in the face of weak demand as signs that the market is not punishing Western Digital for the acquisition.
A fourth shareholder, who is supportive of the transaction, did express some concerns that Western Digital could have done a better job negotiating the deal, noting that the acquisition of SanDisk is very expensive.
SanDisk is also facing other risks and uncertainties, including the upcoming expiration of the cross-licensing agreement with Samsung Electronics in August, as well as the lagging effort with Toshiba to develop 3D NAND, a SanDisk shareholder said.