Global Sources
EE Times-India
Stay in touch with EE Times India
EE Times-India > Memory/Storage

SanDisk rejects unsolicited Samsung bid

Posted: 18 Sep 2008     Print Version  Bookmark and Share

Keywords:flash memory maker  proposal  bid  acquisition 

South Korea's Samsung Electronics Co. Ltd. has gone public with a proposal to acquire flash memory maker SanDisk Corp. for Rs.1,114.32 ($26) per share. A letter signed by Samsung CEO Yoon-Woo Lee addressed to SanDisk's board of directors states that Samsung was "deeply disappointed" by SanDisk's rejection of the offer on Sept. 15. The Samsung letter, made public Tuesday (Sept. 16), reiterates the offer of Rs.1,114.32 ($26) per share in cash and argues for the "compelling business logic" of a Samsung-SanDisk union.

SanDisk issued a statement, including excerpts from its Sept. 15 letter to Samsung, confirming the unsolicited Samsung bid and stating that its board of directors unanimously rejected the proposal. Samsung's bid significantly undervalues SanDisk, given the long-term prospects of its business and does not reflect the value of the substantial synergies that Samsung can attain from an acquisition of SanDisk, SanDisk said.

"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," said Eli Harari, SanDisk's chairman and CEO. The bid fails to recognise the value of SanDisk's patent portfolio, investments in strategic partnerships and technology leadership, he added.

According to the Lee's letter, Samsung's offer followed four months of discussions and meetings in Seoul and San Francisco. The letter states that SanDisk "continues to cling to unrealistic expectations on both its stand-alone market value and an appropriate merger price."

Reports of a possible Samsung acquisition of SanDisk first surfaced Sept. 5. On Tuesday, Reuters reported that Japan's Toshiba Corp. is also interested in making a bid for SanDisk if it appears that Samsung may acquire the company.

Samsung decided to make its intentions public because, though it would prefer to continue to work with SanDisk's board of directors to reach a deal in a "cooperative and expeditious fashion," Samsung is "increasingly concerned that the lack of progress is not serving the interests of either company's shareholders," Lee wrote.

Impact of ongoing licensing discussions

Analysts have speculated that one reason Samsung would like to acquire SanDisk is because it pays SanDisk significant intellectual property (IP) royalties, estimated to be Rs.1,714.34 crore ($400 million) to Rs.2,142.92 crore ($500 million) per year.

Lee's letter reveals that the companies discussed in July a proposal for new IP licensing and supply agreements which would not take effect if an acquisition deal were made. The companies have been holding discussions on a renewal of their IP agreement for 14 months.

SanDisk's letter to Samsung suggested that the acquisition offer could be a "calculated negotiating ploy or an attempt to gain leverage in the ongoing licensing negotiations between the companies." SanDisk and Samsung have met more than 10 times on licensing negotiations since June 2007, SanDisk said.

A SanDisk spokesperson told EE Times that SanDisk's ongoing IP licensing discussions with Samsung is widely considered to be one of the reasons that SanDisk's stock is currently depressed. In its letter to Samsung, SanDisk cited this and also blamed industry cyclicality and general equity market conditions for its current share price.

Lee's letter argues that Samsung's bid represents a premium of more than 80 per cent over SanDisk's closing share price on Sept. 15, and a 66 and 164 per cent premium, respectively, over the company's 30-day weighted average price and enterprise value as of Sept. 4.

According to SanDisk, Samsung initially indicated it would be willing to pay "a significant premium" to SanDisk's closing price of Rs.1,232.18 ($28.75) on May 22, the date Samsung first approached SanDisk about the possibility of an acquisition.

Samsung would operate SanDisk as a separate subsidiary company inside of Samsung, Lee's letter states. It argues that a combined Samsung-SanDisk would have a superior global brand, an unparalleled technology platform and the scale and resources to drive convergence in the marketplace.

SanDisk's Sept. 15 letter to Samsung states that the proposed offer represents a 55 per cent discount to SanDisk's 52-week high.

"The world has changed dramatically in the past 52 weeks as can be seen from SanDisk's own disappointing results," Lee wrote in response. "Consumer spending and the overall economic situation have been getting worse. It will take the NAND flash market quite a bit of time to recover."

- Dylan McGrath
EE Times

Comment on "SanDisk rejects unsolicited Samsung ..."
*  You can enter [0] more charecters.
*Verify code:


Visit Asia Webinars to learn about the latest in technology and get practical design tips.


Go to top             Connect on Facebook      Follow us on Twitter      Follow us on Orkut

Back to Top