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Western Digital to buy SanDisk for $19bn

Oct 21, 2015, 8:29 AM EDT
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Western Digital announced it will buy hard disk maker SanDisk for $19 billion. The offer values SanDisk at $86.50 a share, a 15% premium to Tuesday’s close. SanDisk shares rose 6.2% to $79.84 premarket, the Wall Street Journal reports. Western Digital was halted. SanDisk was thought to be shopping for a buyer, and industry watchers had said Western Digital would be a logical candidate. Western Digital is facing challenges to its core hard-disk-drive businesses from flash and solid-state drives, or SSDs, and acquiring SanDisk could be a hedge and as a driver of new growth.

SanDisk, a major maker of flash-memory chips, had benefited from the explosive growth in demand for products such as smartphones. But its results have lagged behind recently amid a variety of problems, from product-qualification delays to lower-than-expected sales of enterprise products. Compounding its problems was Apple Inc.’s decision to start designing its own controller chips and buying Samsung chips instead of SanDisk’s SSDs.

Western Digital CEO Steve Milligan will continue to serve as chief executive of the combined company, and the company will remain based in Irvine, Calif. Upon closing, SanDisk CEO Sanjay Mehrotra is expected to join the Western Digital board. Western Digital said the deal is expected to add to earnings within 12 months of closing, and it will achieve annual synergies of $500 million within 18 months. Pending the closing, the company expects to continue paying its quarterly dividend and will suspend its share buyback program.

Demand for cheaper chips and new products to power Internet-connected gadgets, as well as a push from technology companies to consolidate suppliers, has led to record levels of dealmaking in the semiconductor sector this year, writes Reuters. The value of the SanDisk acquisition will depend on the closing and approval of an investment from a unit of China's state-backed Tsinghua Holdings Co Ltd [TSHUAA.UL], Unisplendour Corp Ltd in Western Digital, the companies said on Wednesday. The deal is expected to close in the third calendar quarter of 2016.

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