Western Digital Will Resort to Debt to Fund SanDisk Acquisition

Western Digital will raise $18.4 billion to finance SanDisk acquisition

Previously in this series, we looked at Western Digital’s (WDC) $19 billion acquisition of SanDisk (SNDK). We saw how it benefited SanDisk investors, who witnessed SNDK shares rise ~28% in the past one month.

To fund the SanDisk acquisition, Western Digital intends to raise new debt of approximately $18.4 billion. Dell is also considering the debt market to raise the $40 billion needed to fund the acquisition of EMC (EMC) announced on October 12, 2015. The Carlyle Group’s acquisition of Symantec’s (SYMC) Veritas has been by far the biggest LBO (leveraged buyout) deal in the United States in 2015 to date.

US corporate debt issuance is expected to hit a record high in 2015 on the back of an ongoing increase in M&A (merger and acquisition) activity, sponsor-backed IPOs (initial public offers), share buybacks, and increasing dividends.
Western Digital Will Resort to Debt to Fund SanDisk Acquisition

Industry analysts believe that Unisplendour’s investment in Western Digital will provide WDC with a significant cash infusion that might enable the company to take bigger strides in its key interest areas such as flash and solid state storage.

In early October, China-based Unisplendour, a subsidiary of Tsinghua Holdings, acquired a 15% stake in Western Digital for $3.8 billion. Through this investment, Western Digital got a politically connected ally in Tsinghua. However, Western Digital is not the only company that has taken such a step to strengthen its presence and relations with China.

On May 21, 2015, Hewlett-Packard (HPQ) officially announced the sale of its 51% share in H3C Technologies to Tsinghua Holdings subsidiary Unisplendour. Its intention is to brighten future growth prospects in China (FXI) as well as get a politically connected partner in Tsinghua Holdings. Every technology company wants an association with China, as it’s a key Asian market for a majority of technology companies.

Semiconductor space also saw major acquisition

News of Western Digital’s acquisition of SanDisk was followed by another big deal. On October 21, Lam Research (LRCX), a chip tool manufacturer, announced the acquisition of KLA-Tencor (KLAC), a chip manufacturer, for $10.6 billion.