Samsung makes a hostile bid for SanDisk

Following recent discussions between the two companies that caused speculation regarding a merger, Samsung has made a public cash bid for SanDisk shares.

On September 4, shares in storage company SanDisk quadrupled in value after a Samsung spokesman noted that there were yet unresolved talks between the two companies. Spokesman James Chung said, "We are considering various opportunities regarding SanDisk, but nothing has been decided."

SanDisk later confirmed that it had been in discussion with Samsung, but refused to comment upon any rumors: "SanDisk periodically has conversations with multiple parties, including Samsung, regarding a variety of potential business opportunities. We evaluate all of these opportunities, but maintain a policy of not commenting on market rumors or speculation."

Now, amid desperate market conditions, Samsung has offered $5.8 billion, or $26 per share to SanDisk's stockholders. This offer places a value on the stock six times higher than it was just one day before Chung's announcement.

In Samsung's statement this afternoon to SanDisk's board of directors, the company said, "We are in receipt of your letter dated September 15, 2008 and are deeply disappointed that after four months of discussions and meetings -- in Seoul and San Francisco -- about a possible business combination, SanDisk Corporation continues to cling to unrealistic expectations on both its standalone market value and an appropriate merger price. Under our proposal, which we are reiterating here, we remain prepared to acquire all of the outstanding shares of SanDisk for $26 per share in cash. As you know, our proposal is not subject to any financing contingency and the entire purchase price will be funded with our cash on hand and available financing."

SanDisk's board has responded to this approach with a unanimous rejection, calling it a gross undervaluation of the company's 52-week high stock price and an "opportunistic attempt to take advantage of SanDisk's current stock price, which is significantly depressed given industry cyclicality, the uncertainty resulting from the unresolved patent cross license agreement renewal with Samsung, and general equity market conditions."

Several factors contribute to the benefit Samsung could potentially receive from a SanDisk acquisition. Chief among these are the steep royalty fees it would no longer have to pay to SanDisk for licenses for multi-level cell (MLC) licensing, and the intellectual property SanDisk holds in the nascent 3D memory category.

If Samsung were to acquire SanDisk, it would not only be able to forego the MLC royalties, but obtain crucial footing in a next-generation integrated circuit memory technology.

10:50 am EDT September 17, 2008 - Interest in SanDisk is also strong just across the Korea Strait. Executives from Toshiba yesterday said the company is interested in making a counter-bid to block Samsung's takeover.

While Toshiba's bid could also be considered an opportunistic maneuver, the Japanese company faces a great deal of uncertainty in a Samsung and SanDisk merger. It looks to be more of a defensive strategy, as Toshiba has a long-standing partnership with SanDisk called the Flash Alliance. The two companies opened a 300mm wafer fabrication facility in Japan's Mie Prefecture called "Fab 4." Analysts speculate that a Samsung takeover could put this facility in jeopardy.