Samsung Withdraws Generous Bid for SanDisk

By Chris Preimesberger  |  Posted 2008-10-22

Samsung Withdraws Generous Bid for SanDisk

Flash memory provider Samsung said Oct. 22 it has withdrawn its $26-per-share bid to acquire innovative but struggling NAND flash maker SanDisk

SanDisk's common stock was trading at slightly above $10 on Oct. 22.

The move by Samsung comes a mere two days after longtime flash memory partners Toshiba and SanDisk announced an agreement that turns over 30 percent of SanDisk's share of current manufacturing capacity of the companies' joint ventures to Toshiba.

SanDisk will get equipment-leasing cost reductions and a cash infusion amounting to about $1 billion as its part of the deal.

The board of SanDisk on Sept. 17 rejected a formal bid by Samsung for a $26-per-share takeover, believing that the offer undervalued the company's substantial flash memory intellectual property portfolio.

SanDisk, with a market capitalization of $3.2 billion, has suffered along with the rest of the industry through an oversupply of NAND chips, especially those ticketed for use in servers and laptops.

Explaining that "... your shareholders would have received full, fair and certain value for their shares and your employees and other stakeholders would have benefited," Samsung gave its reasons to believe that SanDisk was errant in its expectations for the current market situation to improve in the near term.

Samsung explained that there are "growing uncertainties in your business, which may continue to deteriorate in this difficult economic environment and further impact your stand-alone value."

Samsung also noted, "Your surprise announcements of a quarter billion-dollar operating loss, a hurried renegotiation of your relationship with Toshiba and major job losses across your organization all point to a considerable increase in your risk profile."

SanDisk Responds

SanDisk took only about 3 hours to respond.

"SanDisk's board has remained open to a transaction that recognizes SanDisk's long-term value and contains the right protections for SanDisk's shareholders," the company said in a statement to press members and analysts.

"We repeatedly outlined a clear path to hold further discussions, including most recently in our letter on Sept. 15, and Samsung consistently chose to ignore that path and, in fact, never contacted SanDisk regarding their proposal after we delivered our letter," SanDisk said. "We believe this raises questions about the real motivations behind Samsung's offer."

This is similar to a series of miscommunications involving the overtures Microsoft made to Yahoo in its two takeover attempts earlier this year.

"This has so far been quite a melodrama, and we anticipate further very significant announcements before the matter is put to rest," Objective Analysis principal analyst Jim Handy said in an e-mail brief. "With this there will probably be significant share price shifts at SanDisk. This is no market for the timid!"

This is good for Samsung, Handy noted. 

"Samsung's stockholders will be rewarded if the company can acquire SanDisk at the lowest possible price.  Today's announcement should help Samsung push SanDisk's share price lower, making it possible to acquire the company at a better deal than the $26 per share that Samsung previously offered," Handy said.

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