SanDisk to Buy MSystems For $1.5 Billion in Stock

by: Mick Weinstein

Excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):

SanDisk Will Buy Israeli Data-Storage Supplier

  • Summary: Flash memory leader SanDisk will acquire msystems in a stock-based acquisition worth about $1.55 billion. The deal comes as Israel-based msystems attempts to shake off a options backdating investigation that delayed a stock offering planned for this past May. At Friday's pricing of SanDisk, the deal offers about $36 per msystems share -- a 26% premium over Friday's closing msystems price.
  • Comment on related stocks/ETFs: Msystems CEO Dov Moran has been downplaying the likelihood of this for some time, but as Shlomi Cohen stated just days ago while predicting this deal, msystems needs NAND chips and SanDisk has them. Though it raised sales 20x over the past five years, msystems has been hampered in the recent past by supply constraints and low gross margins due to high NAND costs; its management apparently decided that only by joining together with a foundry principle (SanDisk, with its Toshiba partner) could the company see ongoing growth. This is a significant deal for SanDisk, whose market cap is currently only about 8x this purchase price. The acquisition appears negative for IP licenser Saifun (NYSE:SFUN) because of the pressure SNDK/FLSH could bring to bear on the next-generation, four bit technology flash market (though it could raise the likelihood for a SFUN takeover), and marginally negative for AMD spinoff Spansion (SPSN), a Saifun licensee and SNDK competitor. Note that Sandisk and msystems led last week's price and volume breakouts among flash memory producers.