Date back to October 21, 2015, Western Digital WDC announced a deal to acquire Sandisk for $86.50 per share. Ahead of that announcement, Sandisk had been climbing for over a week from a low of around $61 per share to $75 per share the night before the deal was made public. Interestingly, Sandisk shares have never touched an 8-handle even after the deal was made public despite the $86.50 per share price acquisition price indicating a healthy level of investor circumspection even back then.
Yesterday CLSA came out with a note saying that there is a 25% chance that Western Digital might walk away from the deal which dropped Sandisk shares right back to the $60 and small change per share level.
Since the merger announcement between the two companies, the S&P and the SOX are down around 12% each and the demand environment for memory and HDD has weakened considerably as well, which is leading to some speculation that either Western Digital will walk away from the agreement or will step back in with a renegotiated offer.
And Western Digital shares which were trading at just under $75 the day before the merger announcement, are under severe pressure and are current trading 43% lower at $42 and change as well. Also, Western Digital is awaiting a 15% investment from Chinese investment company, Unisplendour, at $92.50 per share.
The Unisplendour/Western Digital investment has a deadline of February 29, 2016 and until that deal is consummated, shareholders of Sandisk will be left on tenterhooks but the acquisition should get done albeit at lower prices in all likelihood.
Let’s not forget that before the Western Digital deal was announced there was strong speculation that Samsung was also very hot to trot with Sandisk, hence if Western Digital were to walk away from Sandisk, Samsung could be waiting to swoop in.
More importantly, Sandisk presents an interesting investment at current levels considering the pending acquisition by Western Digital representing a 40% return in a few months if the deal closes at $86.50 per share. If it does not, there’s Samsung that could be lying in wait.