Western Digital Completes $16 Billion Acquisition of SanDisk

Western Digital Corporation announced that its wholly-owned subsidiary Western Digital Technologies, Inc. has completed the acquisition of SanDisk Corporation.

The addition of SanDisk makes Western Digital Corporation a comprehensive storage solutions provider with global reach, and a product and technology platform that includes deep expertise in both rotating magnetic storage and non-volatile memory (NVM).

The company also indicated that the debt financing associated with this transaction has been consummated and that the previously obtained funds from this financing have been released from escrow to Western Digital Technologies, Inc.

“Today is a significant day in the history of Western Digital,” said Steve Milligan, CEO of Western Digital. “We are delighted to welcome SanDisk into the Western Digital family. This transformational combination creates a media-agnostic leader in storage technology with a robust portfolio of products and solutions that will address a wide range of applications in almost all of the world’s computing and mobile devices. We are excited to now begin focusing on the many opportunities before us, from leading innovation to bringing the best of what we can offer as a combined company to our customers. In addition, we will begin the work to fully realize the value of this combination through executing on our synergies, generating significant cash flow, as well as rapidly deleveraging our balance sheet, and creating significant long-term value for our shareholders.“

The integration process will begin immediately through the joint efforts of teams from both companies. As previously announced, Steve Milligan will continue to serve as CEO of Western Digital, which will remain headquartered in Irvine, California. Sanjay Mehrotra, co-founder, president and CEO of SanDisk, will serve as a member of the Western Digital board of directors, effective immediately.

“As a combined company, we will be best positioned to address the demands for storage, which is growing exponentially every year,” said Sanjay Mehrotra. “Growth and change go hand in hand, and we couldn’t be happier to grow and change together with Western Digital. I look forward to contributing to realizing the potential of this combination as a member of the board.”

Under the terms of the transaction, each outstanding share of SanDisk common stock was converted into the right to receive $67.50 per share in cash and 0.2387 shares of Western Digital common stock.

Comments

That's the best operation that Western Digital ever did in the history of the company. It's even more strategic than the acquisition of HGST for $4.8 billion in 2012, and without the long period of difficulties to integrate HGST following the Ministry of Commerce of China (MOFCOM) regulations. Even today, it's not finished as Western Digital and HGST continues to be obliged to separate their sales forces for several months, according to an HGST representative.

Here the last recent approval of MOFCOM, after all other regulation bodies, authorized the completion of the deal without conditions. The acquisition is officially closed on May 12, 2016, the transaction being financed by a mix of cash, new debt financing and Western Digital stock.

The SanDisk brand will be maintained as a product-line brand within the Western Digital family of brands, similar to HGST and WD.

For sure the price to get SanDisk is high - finally $16 billion rather than $19 billion - so high that competitor Seagate preferred not to match the offer.

For the two HDD makers, it's a question of life or death. The rotating magnetic disk drive market is definitively shrinking meaning that, without investing seriously in other products, their revenue will doubtless decrease. It will be the case for Seagate representing practically nothing in the growing market of SSDs.

Acquiring SanDisk, becoming a wholly-owned indirect subsidiary, Western Digital now has a chance to largely compensate the decline in HDDs with a robust SSD partner. SanDisk is number two behind Samsung in the WW SSD market with nearly 12% of the units shipped.

The combined HDD/SSD companies will have 74,000 employees worldwide.

Considering their last known financial quarter, Western Digital was already slightly in front of Seagate in sales with revenue 9% higher. If you add WD to SanDisk, the quarterly figure is $4,188 billion in revenue. Consequently the merged firms will become largely the leader of the global WW storage industry in front of EMC added to Dell representing $3,879 billion for three-month period. Following a merger, generally the addition of sales takes time to complete, but it will the case for Western Digital/SanDisk as well as for Dell/EMC. Furthermore Dell has more products in competition with Dell.

One of the few segments in competition, if you compare the Western Digital and SanDisk portfolios, concerns the high-end enterprise SSDs, both firms having around 6% to 8% share in this specific segment. A decision will be done to choose between the two lines probably when they will enhance their enterprise calalog.

Seagate must absolutely find a way to diversify. In storage subsystems? The company never was successful in this business in competition with OEMs. Flash? The biggest mistake of Seagate (and Western Digital) was not to invest in the production of flash chips, a very costly operation but essential to become a serious player in SSDs as these chips are by far the more expansive component into SSDs. Here Western Digital will continue to benefit from the SanDisk/Toshiba agreement in manufacturing with some common facilities.

Now which companies could be acquired by Seagate? Among the five NAND chipmakers, SanDisk is now no more available, you cannot buy the business of Samsung, not for sale, and it seems impossible to get the Intel/Micron activity at a reasonable price. At the end there are only two names: $19 billion SK Hynix in China and Korea - also in DRAM -, and smaller Powerchip Semiconductor in Taiwan. But for these two latter companies, we doubt that MOFCOM will accept such transactions.