Hardly A Done Deal: Samsung Makes Play For SanDisk

Samsung, one of the world's largest memory manufacturers, revealed in a letter made public Tuesday that it is making a cash offer of $26 per share to acquire SanDisk, a 93 percent premium over SanDisk's share price on Sept. 4, which is when word of the offer was first reported in the press. Samsung's letter was dated Sept. 17 Korean time and signed by Yoon-Woo Lee, vice chairman and CEO. SanDisk immediately rejected the offer.

Less than 90 minutes after Samsung made public its letter via the BusinessWire wire service, SanDisk released its response on BusinessWire and on its own Web site.

In its response, dated Sept. 16 California time and signed by Eli Harari, chairman and CEO of SanDisk, SanDisk said the $26-per-share offer by Samsung in a proposal dated Aug. 9 "significantly undervalues SanDisk given the longer-term prospects of our business and does not reflect the substantial synergies Samsung can obtain from the proposed acquisition."

The proposal, SanDisk said, also "raises the question of whether this action is simply an effort to gain leverage in the ongoing negotiations to renew our patent cross-license agreement and evidences an unwillingness to engage in a process designed to legitimately protect SanDisk's stockholders' interests," SanDisk wrote.

In addition, SanDisk said the $26-per-share offer actually represented a 52 percent discount to SanDisk's highest share price in the past 52 weeks, and that an acquisition would represent an opportunity for Samsung to gain access to a number of leading memory technologies and avoid paying "billions of dollars of royalties over the coming decade."

In its letter, Samsung said SanDisk was continuing "to cling to unrealistic expectations on both its stand-alone market value and an appropriate merger price."

Samsung also countered that SanDisk's contention of an inadequate offer is flawed because of turbulent current market conditions and negative world economic trends, as well as the need for SanDisk "to fund critical investment and development over the next several months."

Samsung maintains that the best move for the two companies is an acquisition. "With SanDisk's innovative culture and technology leadership and Samsung's scale, leadership in manufacturing and execution, and strong systems and consumer electronics segment knowledge, the combined company would be well positioned to accelerate the adoption of flash memory technology in new markets," Samsung wrote.

Jim Handy, an analyst with Objective Analysis, a Los Gatos, Calif.-based research firm, wrote in a report Tuesday that SanDisk "has plenty of reason to expect their stock price to rebound to or even rise above their 52-week high," and that, barring mismanagement of its business, the company could see its share price exceed its 52-week high of $56.

For Samsung, the offer is an opportunity to take advantage of a weak U.S. dollar to make an acquisition in the U.S., Handy wrote. Samsung also expects that weak memory demand relative to the amount of investment in production capacity in the last two years could prove that its offer is a fair one, Handy wrote.

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