The news broke this morning: SanDisk
It's not because SanDisk is getting immediately more profitable. To the contrary, SanDisk says the deal will subtract 2% to 3% from pro forma earnings this year, before beginning to pay off in 2012. It's not because SanDisk is getting a "good deal" either. So little is known about privately held Pliant that we can't even place a reliable price-to-sales, much less a price-to-earnings, valuation on the deal. In fact, all we really know about Pliant from publicly available information is that private equity has poured about $60 million into the company over the past three years -- which would seem to suggest SanDisk is paying a pretty steep price for Pliant.
Is it worth it?
So why all the excitement about this deal? In a word: Potential.
Pliant, you see, sells into a very lucrative segment of the solid-state drive space: The high end. Its "multi-level cell" NAND SSDs are said to cost more than similar products sold by Intel
Pliant also brings with it a hi-profile partner, in the form of EMC
Foolish final thought
Will all this work out for SanDisk? It's hard to say without having a better idea for Pliant's price/value proposition. What I can tell you is this: SanDisk at 9 times earnings and 8.4 times free cash flow looks remarkably cheap relative to the double-digit growth rate it was expected to achieve before buying fast-growing Pliant. If Pliant helps it to grow faster, the stock's even cheaper than it looks.
Will this deal pay off for SanDisk? Add it to your Fool Watchlist, and find out.
Fool contributor Rich Smith does not own shares of any company named above, but Motley Fool newsletter services have recommended both buying Intel and creating a diagonal call position in Intel. Also, The Motley Fool owns shares of Western Digital and EMC, and has bought calls on Intel. The Motley Fool has a disclosure policy.
Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.