After trading closed on March 31 the Wall Street Journal reported that Micron Technology (MU) and Western Digital (WDC) are looking to purchase the Japanese memory-chip company, Kioxia, for approximately $30 billion.
A deal could be reached as early as this spring for Kioxia, which is controlled by private-equity firm Bain Capital.
Last September, Kioxia pulled the plug on its IPO due to coronavirus concerns and market volatility. However, if the acquisition deal falls through, the company might revisit the idea of an IPO later this year.
An acquisition could merge to rivals.
A deal for Micron to purchase Kioxia could be complicated. The Japanese company’s fabrication plants are jointly owned by Western Digital. While production is split evenly between the two companies, Western Digital doesn’t own any of its fabrications.
Western Digital’s current market cap is slightly lower than Kioxia’s anticipated $30 billion purchase price at $22 billion. Still dealing with debt leftover from its $19 billion acquisition of SanDisk in 2019, Western Digital has about $9 billion in long-term debt outstanding, less about $3 billion in cash.
With a considerably larger market cap at $104 billion, Micron looks more poised to secure a deal. Such a deal would pit the two rivals companies in a joint venture.
Micron looks to scale its NAND business.
The current NAND market is jam-packed with notable players. Kioxia and Western Digital collectively control about 34 percent of the market, with Samsung right behind at 33 percent. SK Hynix and Intel recently merged to control about 15 percent, which leaves Micron holding 14 percent.
By purchasing Kioxia and keeping the same joint venture structure with Western Digital, Micron can expand its NAND wafer capacity without having to build additional fabrication facilities.
What the acquisition means for Micron futures
With the recent announcement of the Biden administration’s infrastructure plan and its emphasis on encouraging U.S. production of goods, bringing more of Kioxia’s SSD manufacturing to the states could be a big boost for Micron.
Currently, Kioxia has fabrication facilities in Japan, the U.S., the U.K., Israel, and India. However, Micron might look to expand production with its U.S. facilities to secure available funding from the infrastructure package.
The news has already made ripples in both Micron and Western Digital shares. Trading closed on April 1 with Micron shares up 4.76 percent to $92.41, while Western Digital shares finished 6.92 percent ahead at $71.37.
A Kioxia IPO might still happen.
If the deal doesn’t happen between Kioxia and Micron, Kioxia would be expected to push an IPO sometime in 2021.
Kioxia pulled the plug on what would’ve been Japan’s largest IPO in 2020 by offering up $3.2 billion in shares to the Tokyo Stock Exchange.
Without a massive acquisition deal with Micron or Western Digital, the company will most likely be looking for an influx of capital in the form of available shares.