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Flash memory providers Toshiba and SanDisk, partners for the last several years, announced an agreement Oct. 20 that turns over 30 percent of SanDisk’s share of current manufacturing capacity of the companies’ joint ventures to Toshiba.
In exchange, SanDisk will get equipment-leasing cost reductions and a cash infusion amounting to about $1 billion.
The deal throws a protracted business triangle involving SanDisk, Toshiba and its longtime market foe, Samsung, into disarray. The board of SanDisk, an innovative but struggling NAND flash maker, on Sept. 17 rejected a formal bid by Samsung for a $26-per-share takeover. SanDisk’s common stock closed at $14.42 on Oct. 20.
SanDisk, with a market capitalization of $3.24 billion, has suffered along with the rest of the flash industry through an oversupply of NAND chips, especially those ticketed for use in servers and laptops.
Flash memory, used in such products as iPods, cell phones and digital cameras, has seen its prices fall sharply. NAND flash is selling for under $2 per gigabyte; a year ago, it commanded around $4 to $5 per gigabyte.
What This Means to SanDisk
“This assets-for-cash swap will bolster SanDisk’s coffers during a time when the company’s stock price is depressed, but their cash position was not desperate during their last earnings announcement,” longtime flash industry analyst Jim Handy of Objective Analysis said in an e-mail alert.
Why would SanDisk be interested in an infusion of cash at this time?
“We can only guess that this cash might be used to repurchase depressed SanDisk shares, whose price dropped on this news from around $16.50 last week to [around] $14 at the writing of this alert. SanDisk could use this measure to help thwart Samsung’s takeover bid, remaining independent until 2009’s NAND recovery drives its stock back to record levels,” Handy said.
It appears that Toshiba is valuing this deal with a consideration to the future of the joint venture, Handy said.
What is Samsung’s perspective?
“It is not yet clear how Samsung will be impacted,” Handy said. “Investors appear to believe that the Samsung takeover bid is threatened by this move, although lately there have been arguments that the deal was doomed from the start.
“These arguments center around recently disclosed court documents that indicate that SanDisk’s mSystems patent acquisitions carry a considerably higher value than was previously thought,” Handy added. “Some [observers] thought that this new disclosure proved that Samsung’s bid was well below SanDisk’s value. Nonetheless, SanDisk’s stock did not rise on this finding.
“It is only natural for us to suspect that the deal is aimed somehow at defending SanDisk from Samsung’s takeover attempt, but until the companies choose to reveal details of the agreement, we will know only the little information we have received so far.”