Samsung Elec mulls SanDisk buy; Toshiba shrs fall

SEOUL/TOKYO Fri Sep 5, 2008 11:51am EDT

Employees of Samsung Group walk in front of the company's logo at its headquarters in Seoul April 22, 2008. Samsung Electronics Co Ltd said on Friday it was considering ''various opportunities'' regarding SanDisk, in response to reports it was interested in bidding for the U.S. flash memory maker. REUTERS/Jo Yong-Hak

Employees of Samsung Group walk in front of the company's logo at its headquarters in Seoul April 22, 2008. Samsung Electronics Co Ltd said on Friday it was considering ''various opportunities'' regarding SanDisk, in response to reports it was interested in bidding for the U.S. flash memory maker.

Credit: Reuters/Jo Yong-Hak

SEOUL/TOKYO (Reuters) - Samsung Electronics Co Ltd (005930.KS), the world's top maker of memory chips, said it may buy flash memory maker SanDisk (SNDK.O), which is valued at $3.2 billion, in a deal that could reshape a struggling industry.

An acquisition of SanDisk would expand Samsung's market share at a time when prices for flash memory, used in such products as digital cameras, cell phones and music players, are falling sharply. The deal would also reduce Samsung's licensing costs by assuming control of SanDisk's popular technology.

"We are looking at various opportunities regarding SanDisk, but nothing has been decided yet," Samsung spokesman James Chung told Reuters in response to reports the South Korean firm was interested in the U.S. maker of flash memory, which is widely used in storage devices and digital gadgets.

In a regulatory filing later, Samsung said one of its options would be an acquisition of SanDisk, whose shares jumped 24 percent in pre-open trade on Friday.

Analysts said an acquisition could shift the balance of power in the flash memory industry away from Japan's Toshiba (6502.T), which trails Samsung in the flash market but plans to nearly double its chip production capacity in partnership with SanDisk.

"Samsung buying SanDisk would mean big damage for Toshiba," said Yoshihisa Toyosaki, head of IT research firm J-Star Inc.

Shares in Samsung closed up 1.2 percent after gaining more than 3 percent, outperforming a 1.6 percent fall on the wider Seoul share market .KS11.

Toshiba's shares fell 4.6 percent to their lowest level since November 2005.

In a brief statement, SanDisk said it "periodically has conversations with multiple parties, including Samsung, regarding a variety of potential business opportunities," but declined to comment further.

SanDisk shares have tumbled since mid-May, when they reached a recent peak just above $33. The stock closed at $13.46 on Thursday, valuing the company at around $3.2 billion. The stock traded at $16.75 in pre-open trade on Friday morning.

Online news provider eDaily on Friday said Samsung was interested in acquiring SanDisk, whose shares have been mauled by a steep downturn in the memory market. It said Samsung had retained JPMorgan as an adviser.

Samsung, which pays SanDisk 400 billion won ($353.8 million) a year in licensing fees, is looking to reduce that cost through the acquisition, eDaily reported.

Analysts also noted Samsung has been struggling with steep price drops in NAND flash memory chips.

"Although SanDisk and Toshiba are partners, there are doubts as to whether SanDisk will continue to invest (in their venture)," said James Song, an analyst at Daewoo Sec. "So in the medium to long term, Samsung would be able to gain more control over the flash market."

"By acquiring SanDisk, Samsung could also reduce expenses related to royalties, and use SanDisk's marketing presence to establish itself in the flash-based computer market."

J-Star's Toyosaki agreed.

"Toshiba is trying to take business and market share away from Samsung. Samsung could suppress this by taking control of SanDisk and gaining access to its basic patents."

Others were more doubtful of any immediate impact a purchase could have.

"As long as Toshiba manages the output (at the two companies' NAND lines), even if Samsung becomes the largest shareholder in SanDisk it would have no impact on supply," said Park Hyun, an analyst at Prudential Investment and Securities.

CW Chung, analyst at Lehman Brothers, noted Samsung would need to overcome anti-trust scrutiny and issues relating to SanDisk's venture with Toshiba.

"As these issues are not yet resolved, we believe it is too soon to conclude that Samsung can successfully acquire SanDisk. Furthermore, as the M&A news has surfaced during the early stages of Samsung exploring the acquisition possibility, we believe this may also weigh on the success of the deal."

SanDisk, widely known for its memory storage cards, was the subject of speculation in August that computer storage drive maker Seagate Technology Inc STX.N could be interested in buying all or part of it

(Additional reporting by Park Ju-min, and Franklin Paul in New York)

(Editing by Ian Geoghegan and Derek Caney)

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