SanDisk has rejected an unsolicited $5.85 billion acquisition offer from Samsung as "an opportunistic attempt to take advantage of SanDisk's current stock price, which is significantly depressed given industry cyclicality," the company's board of directors said.
By any measure, the current market value of the world's largest supplier of flash memory cards for cameras, smartphones and other consumer devices "is in a deep discount compared to a few months ago," noted Nam Hyung Kim, chief analyst and director at iSuppli. "It should be a good time for the big players such as Samsung and Toshiba to acquire the world-class flash storage player."
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According to iSuppli, Samsung led the NAND flash memory market in the second quarter of 2008 with a 42.3 percent market share, followed by Toshiba at 27.5 percent and Hynix at 13.4 percent. "SanDisk is the No. 1 flash storage maker of cards and USB flash drives, and SanDisk's business will be complementary with Samsung's NAND chip business," Kim noted.
Samsung would undoubtedly benefit from acquiring SanDisk's R&D, "which is known [to be] one of the best in the world," Kim said. Samsung also issues royalty payments to SanDisk that total around $400 million to $500 million per year. "Therefore, by acquiring SanDisk, Samsung can save tremendous money in the future," Kim added.
SanDisk CEO Eli Harari characterized Samsung's takeover bid as "a calculated negotiating ploy" with respect to ongoing negotiations for the renewal of the companies' patent cross-license agreement, which is slated to expire in August 2009.
It "evidences an unwillingness to engage in a process designed to legitimately protect SanDisk's stockholders' interests," Harari said. "Without the right to use SanDisk's patents, Samsung's stand-alone NAND business' prospects would be significantly compromised."
Yet another problem with Samsung's offer, Harari said, was that it failed to recognize the value of the company's patent portfolio and "technology leadership in three- and four-bits-per-cell flash memory, advanced controllers and three-dimensional semiconductor memory." Still, SanDisk said it is open-minded about eventually concluding a transaction with Samsung, so long as Samsung recognizes the long-term intrinsic value of the company and the deal is "conducted in a process that adequately protects the interests of the company's stockholders."
Should Samsung eventually acquire SanDisk, the resulting consolidation would further boost its already commanding leadership over the NAND chip market. However, any transaction between SanDisk and Samsung "will be subject to regulatory review, including in the United States and the European Union," SanDisk noted.
Given that Toshiba and SanDisk have been closely cooperating on flash memory, Kim thinks there is a possibility for Toshiba to launch a counteroffer. "However, synergy for SanDisk with Samsung seems bigger than that with Toshiba," Kim said. "Samsung has [a] full lineup of memory business, while Toshiba is [only a] NAND supplier."
According to iSuppli, the NAND flash market has been experiencing a sharp downturn since the beginning of 2008 due to intense competition and the slowdown of the economy. During this year's second quarter, the research firm noted, Samsung was the only profitable NAND chip supplier, due to its diverse product lines.
"Samsung is also about three to four times bigger than Toshiba in terms of market cap with enough cash," Kim said. "Therefore, Samsung seems in a better position to bid for the acquisition, I believe."