Samsung drops $5.9 bln SanDisk bid in weak markets

By Rhee So-eui and Marie-France Han

SEOUL (Reuters) - Samsung Electronics Co Ltd, the world's top memory chip maker, withdrew a $5.9 billion unsolicited bid for flash memory card maker SanDisk, citing the U.S. company's deepening losses and uncertain outlook.

The news sent SanDisk shares plunging nearly 30 percent on Wednesday, its biggest one-day slide since January 2001.

Makers of memory chips are bracing for another round of heavy quarterly losses as a downturn in the industry shows no signs of letting up.

Markets had been doubtful of a deal between Samsung and SanDisk, given that the spread between Samsung's offer price and SanDisk's trading price was 80 percent, according to Reuters data.

"Your surprise announcements of a quarter billion dollar operating loss, a hurried renegotiation of your relationship with Toshiba and major job losses across your organization all point to a considerable increase in your risk profile and a material deterioration in value, both on a stand-alone basis as well as to Samsung," Samsung CEO Lee Yoon-woo wrote to SanDisk management in a letter disclosed on Wednesday.

"As a result of these developments, we are no longer interested in acquiring SanDisk at $26 a share."

SanDisk shares fell $4.35 to $10.41 on Nasdaq, where it was one of the most active issues, after hitting a session low of $10.13. On Sept 4, the day before reports of Samsung's interest appeared, SanDisk shares closed at $13.46.

Samsung, South Korea's top company worth $55 billion, ended down 2.1 percent, still outperforming a 5.1 percent drop in the wider Seoul market.

SanDisk, which last month rejected Samsung's bid as too low, said its board had remained open to a deal that "recognizes SanDisk's long-term value" but added Samsung had never contacted it after an exchange of letters in September.

SanDisk would have given Samsung advanced technology and a tighter grip on its market dominance against smaller rival Toshiba Corp. But analysts had said Samsung might withdraw its bid.

"Samsung probably has decided that as the memory chip market continues to weaken, the kind of price SanDisk was asking wasn't what they were willing to go along with," said Kim Young-june, an analyst at KTB Investment.

"The fact that the macroeconomic environment continues to worsen and that the South Korean government has warned against big overseas M&A deals also probably weighed," he added.

To some analysts, Samsung's wording hinted it had not abandoned its pursuit of SanDisk altogether.

"This doesn't necessarily mean Samsung is giving up SanDisk for good," said Song Myung-sup, analyst at HI Investment & Securities.

Others, however, said the deal failed to make sense, and Samsung's withdrawal leaves SanDisk to fend for itself.