Business - Samsung scraps $5.85bn offer to acquire SanDisk

Kevin Cho

Oct. 22 (Bloomberg) -- Samsung Electronics Co., the world's second-largest maker of semiconductors, scrapped a $5.85 billion offer to buy SanDisk Corp., saying losses at the U.S. company may worsen as a glut forces chipmakers to cut prices.

Samsung withdrew its $26-a-share offer after a six-month bid resulted in no ``meaningful progress,'' Chief Executive Officer Lee Yoon Woo said in a statement today. Milpitas, California- based SanDisk has fallen 34 percent to $14.76 on the Nasdaq Stock Market in a month after spurning the bid for being too low.

Lee walked away from the chance to get SanDisk's patents and widen Samsung's lead over Toshiba Corp. in the $15 billion market for memory chips that store songs and pictures in electronics. The move may increase pressure for SanDisk Chief Executive Officer Eli Harari to boost shareholder returns after the stock fell 56 percent this year.

``There's no reason for Samsung to stick to their previous bid for SanDisk given the current environment,'' said Kim Hyung Chan, a fund manager at Seoul-based KTB Asset Management Co., which has the equivalent of $3.3 billion in equities. ``This could be a negotiating tactic.''

Samsung fell 0.4 percent at 11:39 a.m. on the Korea Exchange. Toshiba, which has a chip-manufacturing venture with SanDisk, rose 0.3 percent on the Tokyo Stock Exchange.

`Open Minded'

On Oct. 20, when SanDisk reported its third-quarter results, Harari said the company's board remained ``open minded about a potential transaction with Samsung.'' Still, there hadn't been any further discussions between the two companies, he said.

SanDisk, the biggest maker of memory cards for digital cameras, posted a second consecutive loss after an industry glut drove down flash memory chip prices. SanDisk spokesman Ryan Donovan said today the company didn't have any immediate comment.

``We squarely face the growing uncertainties in your business, which may continue to deteriorate in this difficult economic environment and further impact your standalone value,'' Lee, who became Samsung's chief in May, said in an open letter to Harari. SanDisk's results ``serve only to illustrate this risk.''

Samsung's statement comes two days after Toshiba said it agreed to buy 30 percent of production capacity at its venture with SanDisk to get cheaper access to manufacturing equipment. The companies, which jointly own two factories in Yokkaichi, Japan, will split the remaining 70 percent of the output.

The agreement with Toshiba worsens SanDisk's ``risk profile and a material deterioration in value,'' Samsung's Lee said. Keisuke Ohmori, a Tokyo-based spokesman at Toshiba, was not immediately available for comment.

Toshiba Involvement

``Toshiba's involvement may have made the acquisition technically more difficult and a delay in the recovery of the industry probably affected Samsung's decision,'' Seo Won Seok, an analyst at NH Investment & Securities Co. in Seoul, wrote in a note after the announcement.

Samsung last month publicly disclosed its offer after receiving a Sept. 15 rejection letter from SanDisk's Harari. Samsung initially indicated it would be willing to pay a ``significant'' premium to the $28.75 per share price on May 22, when it first approached the U.S. company, SanDisk said then.

Samsung had a 42.3 percent share of the NAND flash memory- chip market in the second quarter, compared with Tokyo-based Toshiba's 27.5 percent and Hynix Semiconductor Inc.'s 13.4 percent, based on estimates from iSuppli Corp. Industry sales will probably rise 9 percent this year to $15.2 billion, according to the El Segundo, California-based research firm.

Prices of the benchmark NAND flash memory have slumped 55 percent this year because of a glut, according to Dramexchange Technology Inc., operator of Asia's biggest spot market for chips. The outlook for the NAND industry may be worse six-to-nine months from now, according to the Sept. 8 UBS AG report.