Flash memory maker SanDisk Corp. (SNDK) has rejected a $26 per share, $5.85 billion unsolicited takeover offer from Samsung Electronics Co. Ltd., calling the overture "opportunistic."
Talks between Samsung and SanDisk -- which have been rumored for weeks -- were revealed in a letter made public late Tuesday by Samsung. In the lengthy missive to SanDisk chairman and CEO Eli Harari and vice chairman Irwin Federman, Samsung vice chairman and CEO Yoon-Woo Lee said he was "deeply disappointed" that despite four months of discussions and meetings about a possible business combination, SanDisk "continues to cling to unrealistic expectations on both its standalone market value and an appropriate merger price."
"Notwithstanding the current market conditions, to stay competitive, SanDisk will need to fund critical investment and development over the next several months - cost cutting alone will not suffice," Lee wrote. "Our offer insulates your shareholders from the risk of market conditions that have severely deteriorated and are expected to remain challenging."
Lee said if Samsung were to acquire SanDisk, it would operate the acquired company as a separate subsidiary and would not cut any jobs.
After Samsung's letter was made public, SanDisk issued a press release confirming its rejection of the offer. The Milpitas, Calif.-based company said Samsung's offer represents a 55% discount to SanDisk's 52-week high stock value of $56, is an attempt to take advantage of the company's depressed stock price and could be a "calculated negotiating ploy or an attempt to gain leverage" in licensing negotiations.
"We believe we have the strategy, execution record, innovation and financial resources to return to profitable growth and be the flash memory leader in new growth markets in mobile devices, solid state disk, and portable consumer electronics," Harari said.
Jim Handy, an analyst with semiconductor market research firm Objective Analysis, agreed that Samsung was swooping in on SanDisk during a cyclical downturn in the memory chip industry, adding that Samsung's timing was "excellent." While he said he believes that SanDisk's share value will return to well-above Samsung's $26 per share offer, it will not happen until next year.
"This is a difficult position," he wrote. "Shareholders can either take a stated offer at what might seem a very good price, or they can have faith that SanDisk stock will again rise above Samsung's current price."
He also said a Samsung-SanDisk marriage could raise concerns among antitrust regulators.
"Such a merger should prove very difficult for the combined companies' competition and possibly to their customers whose negotiating power would become severely constrained," he wrote.
SanDisk hired Goldman Sachs and Morgan Stanley as financial advisers and retained Skadden, Arps, Slate, Meagher and Flom LLP. Samsung said it has hired J.P.Morgan Chase & Co. and Allen & Company LLC as its financial advisors, and Sullivan & Cromwell LLP as legal counsel. -- Olaf de Senerpont Domis