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Samsung Goes Hostile in Bid For Memory-Maker SanDisk


Consumer electronics giant Samsung Electronics is taking off the gloves in its bid to acquire flash-memory maker Milpitas (Calif.)-based SanDisk Corp.

The company revealed it has made an unsolicited offer to buy SanDisk for $26 a share. The cash offer represents a whopping 93% premium over SanDisk?? closing share price on Sept. 4, when a South Korean newspaper reported that the two were talking about a combination. The offer would bring a 53% premium over Tuesday?? closing price of $15.04. SanDisk?? board of directors unanimously rejected the bid as undervalued.

Samsung said in five-page press release Sept. 16 that it has spent four months in meetings in Seoul and San Francisco trying to convince SanDisk executives that a combination of the two would better weather the ups and downs of the volatile industry than SanDisk going it alone.

Flash memory is used in all manner of digital devices, from the hit iPod to digital cameras and toys. But a glut of manufacturing and factory capacity has sapped profits for many of the big players over the last year. Analysts have steadily downgraded prospects for the industry; several recently recommended investors sell or hold SanDisk shares.

Since reports of the talks first surfaced, Wall Street analysts and industry watchers have been divided on whether Samsung is really serious about acquiring SanDisk.

Some suggest the larger company is more interested in gaining leverage as the two negotiate new royalties for technology they own related to making flash memory. The two companies have been in talks for about a year; a tie-up would save Samsung millions in royalty payments.

Others have suggested Samsung might be aiming to cut capacity in the marketplace and shore up declining prices for memory chips by taking SanDisk out of the equation.

The biggest flash-memory maker in the world, Samsung faces increasing competition from Intel, Toshiba and other rivals. By buying SanDisk, Samsung might be able to unwind joint manufacturing deals the smaller company has with Toshiba. And it gains access to the retail market where SanDisk dominates in sales of tiny flash storage cards and has its own line of digital music players.

In sharply-worded language, Samsung Electronics CEO Yoon-Woo Lee states SanDisk ??ontinues to cling to unrealistic expectations on both its standalone market value and an appropriate merger price?because the smaller memory maker is holding out for an offer closer to its 52-week high of $55.98 a share. The bid values SanDisk at $5.85 billion—well above the $3 billion analysts recently suggested SanDisk might be worth.

The public release of the letter, dated Sept. 17, appears aimed at putting pressure on SanDisk CEO Eli Harari to enter in serious negotiations. It only implies it will take its fight directly to shareholders, offering no timetable for SanDisk executives to respond.

A SanDisk spokesman said Samsung execs in recent talks had suggested the smaller company is worth significantly more than $26 a share. In its own statement, SanDisk suggested the bid is an “opportunistic attempt” to take advantage of the company’s depressed stock price and turmoil in the financial markets. The company also suggested it could be a negotiating ploy to win better licensing terms for SanDisk technology.

Shareholders may find the offer tempting, forcing SanDisk’s board to negotiate. Still, the deal could face antitrust scrutiny, given the size of the relative players in the market. Samsung indicated that SanDisk executives have sought assurances such a combination would pass muster with regulators.

Samsung said if a takeover is successful, it will operate SanDisk as a subsidiary and not cut jobs.


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