Basics of the transaction
As we saw in the first part of this series, Western Digital (WDC) is buying SanDisk (SNDK) for a combination of cash and stock. The equity value of the transaction is about $19 billion using the five-day volume-weighted average price of Western Digital before the deal was announced. Shareholders will receive $85.10 in cash and 0.0176 shares of Western Digital for each share of SanDisk they hold. These terms assume that the equity investment with Unisplendour occurs. If that transaction is terminated or has not closed prior to the deal, then the terms will be $67.50 in cash and 0.2387 shares of Western Digital.
The following conditions need to be satisfied in order for the SanDisk-Western Digital merger to close:
- SNDK shareholder vote
- WDC shareholder vote (required only if the Unisplendour deal doesn’t happen)
- The Securities and Exchange Commission’s approval of the proxy statement
- WDC’s filing of a PNR (premerger notification report) to comply with the Hart-Scott-Rodino Antitrust Improvements Act
- Any other foreign antitrust approvals (disclosed in the Company Disclosure Schedule, which is not public)
No-shop provision and breakup fees
SNDK has a no-shop provision with a “fiduciary out,” which means that it cannot talk to other potential purchasers while the transaction is pending. However, the “fiduciary out” does allow SNDK to talk to a bidder who makes an unsolicited approach if the Board of Directors believes such talks can lead to a bona fide superior offer.
If SanDisk accepts a superior bid, it will owe Western Digital a termination fee of $553 million. If Western Digital gets a bid and terminates the deal with SanDisk, it will owe SanDisk $553 million. If SanDisk is unable to get shareholder approval, it will owe Western Digital $184 million. Finally, if Western Digital is unable to secure regulatory approval, it will owe SanDisk $1.1 billion.