Is Western Digital's Acquisition of SanDisk Stalled or Finished?

When disk drive maker Western Digital Corp. (NASDAQ: WDC) agreed last October to acquire flash memory maker SanDisk Corp. (NASDAQ: SNDK), the agreement was complicated by a pending investment in Western Digital of about $3.8 billion by a subsidiary of China-based Unisplendour. That complication was removed Tuesday morning when Western Digital announced that the investment plan has been terminated by Unis and its subsidiary.

The Committee on Foreign Investment in the United States (CFIUS) had decided to investigate the proposed investment and that led to the offer being withdrawn. That changes the calculus for the proposed acquisition of SanDisk.

Under the agreement with SanDisk, because the Unis investment had not closed or been terminated by the time the acquisition was completed, Western Digital will pay $67.50 per share in cash and 0.2387 shares of Western Digital common stock per share of SanDisk common stock. Had the agreement with Unis been closed, Western Digital would have paid $85.10 per share and 0.0176 shares of its stock for each outstanding share of SanDisk common stock.

According to Western Digital, the revised offer for SanDisk values the offer at $78.50 per share based on Monday’s closing price for Western Digital stock. The termination of the Unis investment means that shareholders of both companies must approve the transaction. Western Digital now expects the acquisition to close in the second quarter, a quarter earlier than its initial plan.

That may be difficult to do. London-based Alken Asset Management said on Monday that it planned to vote against the issuance of new stock for Unis with its 5 million shares of Western Digital stock. That action has now been mooted. Alken’s main argument was that the price for SanDisk is too high.

At a five-day weighted average price of $79.60 for Western Digital stock on October 20, the company’s original offer was worth about $86.50 per SanDisk share. At Monday’s closing price of $46.10, the new deal is worth about $78.50 per SanDisk share. Before the October offer, SanDisk shares closed at $75.19. The most recent close was $67.68.

In Western Digital’s original offer, the company was paying a premium of around 70% for SanDisk (according to Alken) based on its share price at the end of September when buyout rumors began to surface, and the new deal looks to be a premium of around 15%. Quite a difference, and one that SanDisk shareholders may find easy to pass up. Western Digital says it remains committed to the acquisition, but SanDisk has not said anything Tuesday morning.

Western Digital stock traded as low as $43.00 a share Tuesday morning (down about 6.7% from Monday’s closing price) and traded later in the morning at around $44.03, down about 4.5%. The stock’s 52-week range is $38.64 to $110.83.

SanDisk shares traded down about 1.9%, at $66.42 in a 52-week range of $44.28 to $87.43.

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