October 22, 2008 / 12:33 AM / 9 years ago

Samsung drops $5.9 bln SanDisk bid in weak markets

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.

<p>A shopper poses with a SanDisk memory card beside a Samsung camera in Hong Kong September 17, 2008. REUTERS/Bobby Yip</p>

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.

“It’s never been clear to us what Samsung would be able to do with SanDisk that it couldn’t do without it,” Cowen & Co. analyst Daniel Berenbaum said in a note. “Another offer is not out of the question, but it’s clear to us that SanDisk plans to restructure to survive as a standalone entity.”

VALUATION

SanDisk posted a wider-than-expected quarterly loss on Monday and said it would sell some equipment to partner Toshiba in a bid to bolster its finances.

Several hostile takeover deals have fallen apart in recent months, as buyers find it tough to finance acquisitions amid the global credit crisis and target companies stick even more strongly to the belief that their depressed stock prices do not reflect their true worth.

“The Toshiba deal added to the difficulties in acquiring SanDisk,” said Won Seo, analyst at NH Investment & Securities, referring to the Japanese flash memory maker’s decision to buy $1 billion worth of equipment from SanDisk.

Analysts said Toshiba, which pioneered NAND flash technology, could lose market share if Samsung eventually buys SanDisk. Toshiba shares dropped 5.1 percent.

Samsung said it would consider joint ventures or alliances at home and abroad to foster growth.

“We will continue to evaluate all options available, including strategic alliance and business combinations and other initiatives, that serve the interest of company shareholders,” said James Chung, a Samsung spokesman.

Samsung had hired JPMorgan Chase & Co and Allen & Co as its financial advisers, while SanDisk was advised by Goldman Sachs Group Inc and Morgan Stanley.

($1=1348.9 won)

Additional reporting by Anupreeta Das in San Francisco, Park Jung-youn in Seoul, and Franklin Paul in New York; Editing by Anshuman Daga and Derek Caney

Our Standards:The Thomson Reuters Trust Principles.
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