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SanDisk turns down Samsung's takeover bid

Posted: 18 Sep 2008 ?? ?Print Version ?Bookmark and Share

Keywords:SanDisk takeover? acquisition bid? flash memory?

SanDisk Corp. has rejected Samsung Electronics Co. Ltd's unsolicited takeover bid for $26 per share.

A letter signed by Yoon-Woo Lee, Samsung CEO, addressed to SanDisk's board of directors states that Samsung was "deeply disappointed" by SanDisk's rejection of the offer on Sept. 15.

The Samsung letter, made public Sept. 16, reiterates the offer of $26 per share in cash and argues for the "compelling business logic" of a Samsung-SanDisk union.

SanDisk issued a statement, including excerpts from its Sept. 15 letter to Samsung, confirming the unsolicited Samsung bid and stating that its board of directors unanimously rejected the proposal. Samsung's bid significantly undervalues SanDisk, given the long-term prospects of its business and does not reflect the value of the substantial synergies that Samsung can attain from an acquisition of SanDisk, SanDisk said.

"We believe Samsung's proposal does not provide appropriate value to our stockholders and is opportunistically timed at the trough of an industry-wide downturn," said Eli Harari, SanDisk's chairman and CEO. The bid fails to recognize the value of SanDisk's patent portfolio, investments in strategic partnerships and technology leadership, he added.

According to the Lee's letter, Samsung's offer followed four months of discussions and meetings in Seoul and San Francisco. The letter states that SanDisk "continues to cling to unrealistic expectations on both its standalone market value and an appropriate merger price."

Reports of a possible Samsung acquisition of SanDisk first surfaced Sept. 5. On Sept. 16, Reuters reported that Japan's Toshiba Corp. is also interested in making a bid for SanDisk if it appears that Samsung may acquire the company.

Samsung decided to make its intentions public because, though it would prefer to continue to work with SanDisk's board of directors to reach a deal in a "cooperative and expeditious fashion," Samsung is "increasingly concerned that the lack of progress is not serving the interests of either company's shareholders," Lee wrote.

Licensing discussions
Analysts have speculated that one reason Samsung would like to acquire SanDisk is because it pays SanDisk significant intellectual property (IP) royalties, estimated to be $400 million to $500 million per year.

Lee's letter reveals that the companies discussed in July a proposal for new IP licensing and supply agreements which would not take effect if an acquisition deal were made. The companies have been holding discussions on a renewal of their IP agreement for 14 months.

SanDisk's letter to Samsung suggested that the acquisition offer could be a "calculated negotiating ploy or an attempt to gain leverage in the ongoing licensing negotiations between the companies." SanDisk and Samsung have met more than 10 times on licensing negotiations since June 2007, SanDisk said.

A SanDisk spokesperson told EE Times that SanDisk's ongoing IP licensing discussions with Samsung is widely considered to be one of the reasons that SanDisk's stock is currently depressed. In its letter to Samsung, SanDisk cited this and also blamed industry cyclicality and general equity market conditions for its current share price.

Lee's letter argues that Samsung's bid represents a premium of more than 80 percent over SanDisk's closing share price on Sept. 15, and a 66 and 164 percent premium, respectively, over the company's 30-day weighted average price and enterprise value as of Sept. 4.

According to SanDisk, Samsung initially indicated it would be willing to pay "a significant premium" to SanDisk's closing price of $28.75 on May 22, the date Samsung first approached SanDisk about the possibility of an acquisition.

Samsung would operate SanDisk as a separate subsidiary company inside of Samsung, Lee's letter states. It argues that a combined Samsung-SanDisk would have a superior global brand, an unparalleled technology platform and the scale and resources to drive convergence in the marketplace.

SanDisk's Sept. 15 letter to Samsung states that the proposed offer represents a 55 percent discount to SanDisk's 52-week high.

"The world has changed dramatically in the past 52 weeks as can be seen from SanDisk's own disappointing results," Lee wrote in response. "Consumer spending and the overall economic situation have been getting worse. It will take the NAND flash market quite a bit of time to recover."

- Dylan McGrath
EE Times

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