Western Digital To Buy SanDisk For $19 Billion — The Hard-Disk Maker Bets On Flash Storage

Western Digital is set to acquire SanDisk for $19 billion. The cash and stock deal will see the hard-disk maker acquire flash memory manufacturer.

As the world rapidly shifts to portable electronics that increasingly demand miniaturized storage solutions, Western Digital has taken a strategic decision of acquiring SanDisk. While the former has always made storage solutions that are traditionally bulky, SanDisk has been making great strides in flash storage that is used in today’s handheld devices.

It is apparent that the storage industry is reorienting itself to match the changing demand of the customer, and Western Digital appears to have accepted the future of storage does not lie in hard-drives. This deal is expected to greatly increase its ability to make flash memory storage chips used in portable devices like smartphones and tablets.

Hard-disk drive maker Western Digital Corp agreed to buy SanDisk Corp in a $19 billion deal in cash and stock deal. The news about acquisition propelled shares of SanDisk to $79.84 premarket. The rise of 6.2 percent was swift, but the final closing price of SanDisk’s share was still quite low as compared to what Western Digital has offered. Considering the buy offer that has been finalized, SanDisk’s shares were procured at $86.50 a share, a 15 percent premium over Tuesday’s close, reported MSN.

The lofty valuation can be attributed to the deal’s complexity, indicated analysts. This is because Western Digital said the value of the transaction hinges on the closing of an investment in the company by Unisplendour Corp Ltd., a unit of China’s state-backed Tsinghua Holdings Co Ltd., reported Yahoo. In simple terms, last month Unisplendour had agreed to buy a 15 percent stake in Western Digital for $3.78 billion. Though the deal appears fairly simple and mundane, industry insiders are confident it is likely to face regulatory scrutiny.

Given the multi-national investment, China may prolong the execution of the deal, citing national security concerns. This, in turn, is very likely to impact Western Digital’s acquisition of SanDisk, and the resulting deal casts a lot of uncertainty over a realistic valuation, especially when Micron Technology was Western Digital’s greatest rival in securing the purchase of SanDisk, reported the Wall Street Journal.

While SanDisk CEO Sanjay Mehrotra will join the ranks of the Western Digital board following the acquisition, Western Digital’s headquarters in Irvine will continue to remain the company’s primary base.

The deal is quite important to Western Digital primarily because of the direction the market has so rapidly taken in recent years. The company has been facing strong competition from flash based memory producing companies. Though Western Digital is a strong contender in manufacturing hard-disks, and few other companies like Seagate can challenge it, the market and consumers now primarily opt for flash and solid-state drives, or SSDs, which are blazing fast. Moreover, with the long-term reliability of flash based storage improving by leaps and bounds, given a choice between hard-drives and flash based storage, customers gladly opt for the latter.

With the cost of flash memory falling rapidly, Western Digital’s retail customers have been steadily reducing, and hence it needed to adopt the newer format of storage. Rather than developing flash based storage from scratch, the company decided to acquire SanDisk, a known brand in flash based storage, which in technical terms is also called NAND storage.

Western Digital still has a loyal customer base when it comes to enterprise-grade long-term storage solution. However, with smartphones and tablets rapidly replacing traditional desktops that required hard-disks to run, the company has ensured it is future-compliant by acquiring SanDisk and its technologies, which also finds uses in cloud computing, data centers, and modern day laptops.

[Photo By Bloomberg / Getty Images]