SanDisk Corp. (SNDK:US) agreed to buy Fusion-io Inc. (FIO:US) for about $1.1 billion, gaining a provider of storage systems to Facebook Inc. and Apple Inc. (AAPL:US) and a route to grow its data center business.
The all-cash offer is for $11.25 a share -- 21 percent higher than Fusion-io’s closing price on June 13 -- and the deal has been approved by the boards, the companies said today in a statement. Fusion-io’s shares rose above the offer price in New York trading, signaling investors may anticipate a counter-bid.
SanDisk, which makes flash-memory chips, memory cards and storage drives, is purchasing Fusion-io to gain a stronger hand in data centers where it can charge more for its products. Fusion-io has long been the subject of takeover speculation dating back to at least a Goldman Sachs Group Inc. report four months after the company’s initial public offering in 2011.
“SanDisk has been trying to get into enterprise big time. With the acquisition of Fusion, they get there faster,” said Srini Nandury, an analyst at Summit Research Partners LLC. “It helps them get to the market quickly, gives them a brand name.”
Fusion-io jumped (FIO:US) 22 percent to $11.36 at the close in New York for the biggest one-day gain since September 2013. SanDisk, based in Milpitas, California, rose 3.6 percent to $102.
Founded in 2005, Fusion-io combines software and memory chips to speed the rate that server computers can access data. The company counts Apple co-founder Steve Wozniak as its chief scientist.
Annual sales of the types of data-storage devices that Salt Lake City-based Fusion-io makes may reach $7 billion by 2017, according to industry researcher IDC. Those systems, based on flash-memory chips made by companies such as SanDisk, are faster and more efficient than traditional spinning disks. That makes it useful for Fusion-io customers such as Apple and Facebook, which have data centers that are constantly processing large amounts of information.
“People who are going to dominate the flash base are going to be broader sweep, full-service companies,” said Richard Kugele, an analyst at Needham & Co. in New York.
Fusion was trying to compete in a crowded market against larger companies such as EMC Corp. and Hewlett-Packard Co., as well as new-comers such as Pure Storage Inc. Sandisk and its memory chipmaker competitors including Samsung Electronics Co. are trying to exploit the growth of flash in data centers by increasing the proportion of sales they get from drives made up of the chips.
The number of flash-based solid-state drives, or SSDs, sold for use in corporate storage will surge 39 percent a year through 2018 after reaching 4.5 million in 2013, according to researcher IHS Inc.
SanDisk will fund the acquisition with cash available on its balance sheet. Under Chief Executive Officer Sanjay Mehrotra, SanDisk has been boosting earnings by selling more chips to makers of mobile devices and focusing on faster solid-state drives, which have a higher average price than memory sticks and cards.
With the addition of Fusion-io, “SanDisk will have the broadest enterprise flash solution portfolio in the industry,” Mehrotra said in a conference call.
In a statement, Fusion-io CEO Shane Robison said the deal is a “compelling opportunity” for the company’s employees, customers and shareholders.
The transaction is expected to be completed by the third quarter of SanDisk’s fiscal 2014 and boost earnings, excluding some items, in the second half of its fiscal 2015.
Goldman Sachs advised SanDisk on the deal while Skadden, Arps, Slate, Meagher & Flom LLP provided legal counsel. Qatalyst Partners acted as financial adviser to Fusion-io and Wilson Sonsini Goodrich & Rosati provided legal counsel.
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