SanDisk Won't Sell Itself for Cheap
By
Anders Bylund
September 18, 2008
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You can't blame Korean electronics giant Samsung (OTC BB: SSNKF.PK) for trying to get an awesome deal on a SanDisk (Nasdaq: SNDK) acquisition. But you can't blame the intended target for its curt "thanks, but no thanks" reply.
On Sept. 5, an SEC filing revealed buyout talks between the two memory chip makers and consumer gadget designers. SanDisk's stock jumped from $13.46 the night before to $17.64 the next day, and now we know that the offer on the table was a generous $26 per share. Is SanDisk crazy to turn down such a free-spending suitor?
Well, no. This was actually a classic lowball offer, and the real negotiations are about to begin. See, Samsung started putting out feelers to its smaller rival back in May, when SanDisk's stock sold for $28.75 per stub. So Samsung faces some of the same criticisms that were pointed at Electronic Arts (Nasdaq: ERTS) and Microsoft (Nasdaq: MSFT) in their romantic pursuits earlier this year. Selling out when the target stock hits rock bottom just would not be fair to the current shareholders.
But unlike at least one of the aforementioned and ultimately failed deals, this business combination actually makes sense. SanDisk could use the wealth of engineering resources and intellectual property Samsung provides; the Koreans would love to have the SanDisk brand name and some fresh manufacturing capacity on its side in the quest for American success; and the deal would immediately kill a long-standing series of licensing issues 'tween the twain.
So unlike Redmond and EA, I fully expect Samsung to step up its bidding here. It was worth a shot to try to grab an awesome deal at these low, low prices, but that gambit has failed. Now it's serious business. Expect cries of "anti-competitive!" and "monopolistic!" from common rivals like Micron (NYSE: MU), Intel (Nasdaq: INTC), and Toshiba. But those concerns will also be symbolic, and we'll eventually get a SamDisk out of the crossfire.
The final price will include a nice buyout premium, and the baseline for that will be much closer to the old $28 level than the $13 range that sparked this staredown. The big financial institutions who own more than 70% of SanDisk's stock won't settle for any wimpy offers.
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