Two Ways SanDisk Can Stave off a Hostile Takeover by Samsung

I was talking to a couple of people I know, and e-mailing a few more regarding Samsung’s (SSNLF.PK) $26/share offer for SanDisk (SNDK) - and SNDK’s prompt rejection of the [as it is now] - friendly overture from Samsung. So, the question was - is a hostile takeover of SNDK possible at all?

For starters, Eli Harari is an excellent CEO, and SNDK is his baby - a symbol of all he has accomplished successfully as a technologist and a businessman. He is proud, and has a modicum of ego (actually, a lot more than that), and cannot imagine himself playing second fiddle to someone in charge of building ships and chips at Samsung. He has built a fantastic business out of making non-volatile memory, and portable music devices (SNDK’s Sansa - though a distant second to the iPod, has sales that are at least thrice that of Microsoft's (MSFT) Zune). 

Second, there are two anti-takeover provisions in the 8K that I pulled from the SEC Website. Quoting verbatim from the filing:

“We have taken a number of actions that could have the effect of discouraging a takeover attempt. For example, we have adopted a stockholder rights plan that would cause substantial dilution to a stockholder, and substantially increase the cost paid by a stockholder, who attempts to acquire us on terms not approved by our board of directors. This could prevent us from being acquired. In addition, our certificate of incorporation grants the board of directors the authority to fix the rights, preferences and privileges of and issue up to 4,000,000 shares of preferred stock without stockholder action.”

In short, they have not one, but TWO ways to stave off a hostile takeover. In addition to these anti-takeover provisions, Toshiba (TOSBF.PK), that benefits from SNDK’s off-balance sheet obligations that I outlined in a previous article, has already said publicly that a Samsung takeover of SanDisk will not go uncontested. Plus, it will corner SNDK between a rock and a DMZ south of North Korea - especially as it applies to Flash Partners I & II - since Samsung has enough Flash capacity to meet all of their and SNDK’s needs.

Yet, a deal can be consummated if Eli wants one……

Disclosures: Long SNDK.