Western Digital (WDC) Seen as More Logical Acquirer of SanDisk (SNDK) at FBN Securities (MU)
Commenting on rumors SanDisk (NASDAQ: SNDK) attracted takeover interest from Western Digital (NASDAQ: WDC) and Micron Technology (NASDAQ: MU), FBN Securities analyst Shebly Seyrafi said he thinks Western Digital is a more logical acquirer.
Seyrafi noted that HDD companies are facing challenges to their core business from flash and SSDs, so these companies could be interested in SanDisk as a hedge. He also pointed out a recent cash injection of $3.8 billion to WDC from China Tsinghua.
Seyrafi explained, "There are several factors which would support a deal from WDC: 1.) WDC has already shown an interest in increasing its presence in flash. The company acquired STEC, Virident, and (all-flash array company) Skyera (STX responded by buying several flash-related assets from AVGO/LSI); 2.) WDC had $5.3B in gross cash and $2.7B in net cash on its balance sheet, so the addition of $3.8B from China Tsinghua will increase these balances to $9.1B in gross cash and $6.5B in net cash. This compares to SNDK’s $12.5B (going to ~$13.7B today) market cap, so WDC can effect an part stock/part cash transaction; and 3.) WDC knows full well that flash is a long-term threat to HDDs, so instead of investing in flash incrementally, as it has done, it may wish to acquire SNDK to materially increases scale here (particularly as competitor STX may also intend to make a move on SNDK in the future)."
Discussing reasons for Micron to do a deal, the analyst said, "MU has a strong position in the DRAM market (where it competes with Samsun, SK Hynix and others) but a smaller share in the NAND market (where leaders include Samsung, Toshiba, and SNDK). Doing such a deal would increase MU’s share in the NAND market to better compete against industry leaders Samsung and Toshiba. However, SNDK already has a relationship with Toshiba in the form of Flash Ventures for the production of NAND flash. Flash Ventures includes Flash Partners (300mm/made in Toshiba Fab 3), Flash Alliance (300mm wafers in Toshiba Fab 4), and Flash Forward (300mm in Toshiba Fab 5). Therefore, we believe that Toshiba would be more resistant to letting SNDK sell itself to MU. MU already has a relationship with Intel, and we doubt that this relationship would expand to INTC/MU/Toshiba."
Seyrafi concluded, "We believe that of the two potential acquirers, WDC is the more logical one. Toshiba has less to fear from such a deal, and WDC has a more compelling reason to engage in such a transaction – specifically hedging the long-term threats to HDDs from flash."
FBN has an Outperform rating on SanDisk with a price target of $90.00
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Shares of SanDisk closed at $61.77 yesterday.