Western Digital's (WDC) SanDisk Deal Nearly Finalized, Needham Reiterates Strong Buy

Needham & Company analyst, Richard Kugele, highlighted the shareholder votes that will allow the Western Digital Corp. (NASDAQ: WDC)/SanDisk (NASDAQ: SNDK) deal to close once China rubber stamps the deal. He reiterated his $90 PT for the combined company which represents nearly 100% upside from current levels.

WDC’s SanDisk acquisition was overwhelmingly approved by WDC shareholders yesterday. With the deal now nearing a C2Q16 close, the focus will quickly shift toward execution as WDC must now streamline the two large organizations and extract synergy savings while maintaining the strong cash flow of the traditional core to finance the debt. We maintain our Strong Buy and $90 target

Commensurate with the press release announcing the outcome of the voting, WDC noted that regulatory approval had already been secured in the US, EU, Singapore, Japan, Taiwan, South Korea, Turkey and S. Africa. Notably Chinese approval remains outstanding, but we do not anticipate any issues to emerge.

WDC will pay $67.50 in cash and 0.2387 shares for each share of SNDK, or ~$78.50, with some variability depending on the cash balance of SNDK. The $17B deal will be financed through $15.1B of new debt and a $3B short-term bridge, which have all already been committed to by banks. The proceeds will be used to pay for the deal as well as refinance existing debt of WDC (including quickly repaying the $3B bridge loan).

WDC has reiterated that it expects to achieve annual run-rate synergies of approx. $500M within 18-months post-closing, and $1.1B by 2020. The deal is expected to be non-GAAP EPS accretive in C2017.

WDC intends to restructure the organization from a tax perspective, which should bring the SNDK business closer to a WDC tax rate (<10%) as well as to allow the use of $8-10B of its offshore cash toward the deal.

For an analyst ratings summary and ratings history on Western Digital Corp. click here. For more ratings news on Western Digital Corp. click here.

Shares of Western Digital Corp. closed at $45.61 yesterday.

You May Also Be Interested In

• Western Digital Corp. (WDC) PT Raised to $730 at Wells Fargo
• Western Digital (WDC) call put ratio 1 call to 1 puts with a focus on July options
• Bernstein SocGen Group Starts Wuxi Apptec (2359:HK) (WUXIF) at Outperform