Why SanDisk Stands to Win by Merging with Western Digital



Shareholders approved the merger despite headwinds

In the previous part of the series, we saw that the Western Digital (WDC) and SanDisk (SNDK) merger faced headwinds due to opposition from a major Western Digital shareholder and a downward revision to the merger offer. Despite all of these headwinds, the two companies received approval from their respective shareholders. Let’s look at the synergies that pulled shareholders in favor of the deal.

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Synergies for SanDisk shareholders

When the revised offer was announced on February 23, 2016, SanDisk shares were trading at $66.61. The deal value per share was at $78.50 per share—a premium of around 18%. In Western Digital’s original offer, the value per share for SanDisk was at $86.50—a premium of around 13% from the October 21, 2015, share price.

SanDisk shareholders had an advantage even with the revised offer. The cash component per share reduced from $85.10 to $67.50. This was greater than SanDisk’s share price of $66.61 on February 23, 2016.

SanDisk’s share prices are on a downward path

The merger was as a breather for SanDisk shareholders. They have been facing lower share prices after the price fell by 24% between March 20 and March 26, 2015. The company lowered its revenue estimates for fiscal 1Q15. Since then, the company has been facing declining revenue and profits as the SSD (solid-state drive) prices fell.

As you can see in the above table, the SSD prices have been falling significantly. They’re expected to continue to fall in the coming years. As a result, SanDisk increased its exposure in the flash memory segment in March 2015. South Korea’s (EWY) Samsung (SSNLF) and SK Hynix and US-based Micron Technology (MU) are at the forefront of flash technology. They’re positioned to offer lower prices. The increasing competition in this segment puts more pressure on SanDisk.

Capitalizing growth in the SSD market

The falling prices increased the adoption of SSDs in laptops. DRAMeXchange senior manager Alan Chen expects the SSD adoption rate in new consumer laptops to increase from an estimated 26% in 2015 to 42% in 2017. SanDisk can capitalize on this trend if it manages to reduce the production cost. This is possible through a merger with Western Digital.

The merger with Western Digital is a complete win for SanDisk. In the next part, we’ll see how Western Digital benefits from the merger.


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