SanDisk Buys Fusion-io Cheap, Forced Losses for Many Fusion-io Holders

SanDisk Corp. (NASDAQ: SNDK) has announced a definitive agreement to acquire Fusion-io Inc. (NYSE: FIO). This combined the independent leader in flash storage solutions with a top developer of flash-based PCIe hardware and software solutions for enterprises and data centers.

Fusion-io was just featured over the weekend in our analyst upgrades of stocks under $10, and the buyout price is lower than the valuation that the analyst gave Fusion-io on its standalone valuation. Could this spark interest elsewhere?

Terms of the acquisition are for an all-cash buyout at $11.25 per Fusion-io share. The deal values the company at roughly $1.1 billion (net of cash assumed). SanDisk will fund the acquisition with cash available on its balance sheet.

SanDisk forecasts that the purchase of Fusion-io will accelerate its efforts to enable the flash-transformed data center and to help companies manage heavy data workloads better and at a lower cost.

The transaction has been approved by the boards of directors of both companies, but it is subject to customary closing conditions, such as regulatory clearance and a completion of the tender offer.

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SanDisk said that the transaction should close in the third quarter of its fiscal 2014. The company also projects that the Fusion-io addition will be accretive to its operating earnings in the second half of SanDisk’s fiscal 2015.

As far as the $1.1 billion in size, SanDisk’s market cap is $22.3 billion. SanDisk is also expected to have 2014 revenues of $6.73 billion and 2015 revenues of $7.31 billion. Fusion-io is expected to have losses in 2014 and 2015, with revenues of $385 million in 2014 and $442 million in 2015.

Be advised that many shareholders of Fusion-io will not be happy here. Not only is this under the independent value of $12.50 put on the company last week, this $11.50 cash buyout price is also under the consensus analyst price target of $11.88. Another issue is that Fusion-io was at $15 less than a year ago and was valued as high as $30 in parts of 2011 and in 2012.

This buyout is going to force many shareholder losses. You can expect the typical class-action law firms to get involved here. Whoops, the firm Andrews & Springer has already announced that it is seeking more cash for Fusion-io shareholders.

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