The Samsung/Sandisk Buyout Offer - corporate cluelessness at its finest

September 17, 2008 · Filed Under Recent News

Time was when SanDisk, the world’s biggest supplier of flash storage cards, was one of the hottest tech stocks this side of the Milky Way. Of course, those also were the days when companies like Lehman and Merrill Lynch were considered unstoppable juggernauts and pillars of financial stability.

These days SanDisk is hardly the big time company it was a couple of years ago. Against a backdrop of weakening consumer demand and with flash memory prices falling, SanDisk’s stock has reflected the company’s changing fortunes, plummeting from a 52-week high of $55.98 to finish at $15.04 yesterday. It’s not just SanDisk feeling the pinch; five of the seven top flash memory producers suffered declines or flat sales during the second quarter. This is due mostly to plummeting prices (have you seen how cheap flash drives are these days?) and a changing marketplace. Storage is dirt cheap nowadays.

But after the close of trading Tuesday, Samsung Electronics confirmed earlier rumors and disclosed it had made a $5.8 billion cash offer to buy SanDisk after what it said were four months of flat and inconclusive talks. SanDisk was quick to reject the offer as inadequate. Interesting strategy, given the stock has lost 70% of its value in the past year or so.

In after-hours trading, shares of SanDisk soared to nearly $23 a share. SanDisk stated it rejected the $26 a share offer, arguing that it undervalues the company. That’s pretty much standard operating procedure in any negotiation, though SanDisk also charged Samsung with “an opportunistic attempt” to exploit a depressed stock price, as well as “the uncertainty resulting from the unresolved patent cross license agreement renewal with Samsung, and general equity market conditions.” That’s corporate lingo for: We want more money.

The rejection of the offer also served as an opportunity for SanDisk to air dirty laundry, suggesting that Samsung’s offer might be “a calculated negotiating ploy or an attempt to gain leverage in the ongoing licensing negotiations between the companies, particularly in light of the fact that the parties have met over 10 times on this issue since June 2007.” Not a company i’d be in a big rush to do business with, but then again, that’s why i’m not in the corporate business world.

SanDisk is not closing the door to future talks with Samsung. Irwin Federman, the company’s lead independent director, said SanDisk remains willing to enter into “good-faith discussions” but did not get more specific. The deal is considered still on thin ice, but why in the world would they turn it down? Do they think they’ll get a better offer in this marketplace?

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