What: Shares of SanDisk (NASDAQ:SNDK) jumped as much as 12% higher on Wednesday morning, propelled by reports of a potential buyout exit. According to Bloomberg and its anonymous sources, the maker of Flash memory chips and storage products containing them has hired an as-yet unnamed bank to explore its strategic options.
Now what: SanDisk competes directly with both of these rumored buyers, but doesn't report either one as a major client or component supplier. If Micron or Western Digital end up acquiring SanDisk, it will be a merger of near-equals in either case.
SanDisk's $14 billion market cap isn't far removed from Micron's $20 billion or Western Digital's $19 billion. The differences grow a bit larger if you look at annual revenues, where SanDisk's $6 billion figure is less than half of its proposed buyers' respective sales.
And of course, SanDisk is far less profitable than Micron and Western Digital, which explains why the company might be looking for an exit strategy in the first place.
For Micron, merging with SanDisk would boost the company's exposure to retail markets and certain high-quality OEM supplier accounts. At the same time, it would consolidate the Flash memory chip industry even further, giving Micron even more control over the global pricing picture for these chips.
In Western Digital's case, the hard drive manufacturer could use a serious boost to its solid-state drive strategy as Flash-based devices start eclipsing magnetic disks across the board. SanDisk would provide that, along with the same client accounts that attracted Micron's attention.
Nothing is set in stone, and none of the companies involved in this rumor have commented on the situation. More details are sure to keep leaking out until a deal is finalized -- or the entire idea officially scrapped. SanDisk reports third-quarter earnings next week, possibly dropping some additional clues in that report and the ensuing analyst call.
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