Samsung Electronics has decided to withdraw its $5.9 billion unsolicited takeover bid, lunched on Sept. 17 for flash memory card maker SanDisk Corporation (SNDK). The decision comes after months-long standoff with SanDisk, for which the South Korean company had offered $26/share.
Samsung cited poor earnings potential at the U.S. company and said it no longer believed SanDisk was worth the money it was offering. In addition, Samsung mentioned that SanDisk’s refusal to engage in friendly discussions with Samsung’s management prevented progress and diminished hopes for a deal.
SanDisk immediately rejected Samsung’s statement saying that from the start of the proposal process SanDisk’s Board had remained open to a transaction that would have recognized SanDisk’s long-term value. SanDisk’s management also said of repeatedly outlining a clear path to hold further discussions with Samsung – which Samsung consistently chose to ignore. Sandisk believes that Samsung’s hesitancy on discussions raise questions about the real motivations behind its offer.
In an open letter to SanDisk’s top executives, Samsung Chief Executive Officer Lee Yoon-woo responded:
We have obligations to our own shareholders which require that we take a disciplined approach, particularly with respect to significant initiatives such as this. Your surprise announcements of a quarter billion dollar operating loss, a hurried renegotiation of your relationship with Toshiba and major job losses across your organization all point to a considerable increase in your risk profile and a material deterioration in value. As a result of these developments, we are no longer interested in acquiring SanDisk at $26/share.”
SanDisk rejected Samsung’s offer made on Sept. 17 as too low. The Milpitas, California-based SanDisk said at the time Samsung’s bid significantly undervalued SanDisk’s long-term prospects of its business and described the bid as opportunistic. Sandisk is convinced Samsung was trying to take advantage of a market downturn and buy the flash memory card maker on the cheap.
The deal, which appeared easy for Samsung since it has no debt, was the largest Samsung has ever attempted. Many in the industry have speculated that one of the main reasons Samsung wanted to acquire SanDisk, besides gaining an advanced technology and a tighter grip on its market dominance, is because it pays SanDisk significant intellectual property royalties, estimated to be between $350 million to $500 million per year.
Considering the current economic climate which is certainly not conducive to public takeovers, seeing another attempted deal get abandoned, it is not really that surprising.