Samsung Electronics has withdrawn its offer to acquire rival flash memory-maker SanDisk citing a lack of progress after six months of discussions between the two companies.
The deal would have strengthened Samsung's position as the number one maker of flash memory chips but could have been difficult to pull-off in part because SanDisk is closely allied with number two-maker Toshiba. Some analysts also expected anti-trust problems should Samsung have reached a deal.
In a letter to SanDisk's board Lee Yoon Woo, CEO of Samsung Electronics, also cited two events from Monday as reasons to abandon the acquisition proposal.
First, SanDisk and Toshiba announced a renegotiation of their flash memory joint-venture partnerships in Japan that had seen them as equal investors in two memory chip production lines and the chips they made. Under the new deal Toshiba would end up with 65 percent of the plant and output while SanDisk took the remaining 35 percent. Then later in the day SanDisk announced a US$250 million operating loss for the July to September quarter.
"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. As a result of these developments, we are no longer interested in acquiring SanDisk at $26 per share," read the letter, a copy of which was released by Samsung.
Fair value
SanDisk reacted to Samsung's announcement with a repeat of its assertion that it's always been open to deal as long as it recognizes what the board considers fair value for the company.
"We repeatedly outlined a clear path to hold further discussions, including most recently in our letter on September 15, and Samsung consistently chose to ignore that path and, in fact, never contacted SanDisk regarding their proposal after we delivered our letter. We believe this raises questions about the real motivations behind Samsung’s offer," the company said in a statement.
The agreement between SanDisk and Toshiba, which was announced as a memorandum of understanding and not a firm deal, was seen by many analysts as a move by SanDisk to make an acquisition by Samsung more difficult although at the time the two companies denied a link between the two issues. Toshiba said Wednesday that the deal remains on despite Samsung's announcement.
While discussions between Samsung and SanDisk had been ongoing for some time, the acquisition offer only became public in September when Samsung disclosed its $26 per share offer. Almost immediately, SanDisk rejected the offer saying it "undervalued" the company despite the $26 per share-offer being well above the then-share price of $15. SanDisk stock had traded as high as $30 earlier in the year and CEO Eli Harari said Samsung's deal was "opportunistically timed at the trough of an industry-wide downturn."
Patents also play a part in the background to the deal.
Earlier this year, a court ruled that Samsung forfeited a perpetual license rights to patents of Msystems, a memory chip technology developer that was acquired by SanDisk. The patents allow four bits of data to be stored in a single memory cell and, without a renewal of a cross-licensing deal by August 2009, the two companies will lose rights to each others patents.
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