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Samsung Offers $5.85 Billion for SanDisk
source: New York Times



Published: September 16, 2008-- SAN FRANCISCO -- Samsung Electronics, the South Korean consumer electronics giant, has made an unsolicited $5.85 billion cash offer for SanDisk, a Silicon Valley maker of flash memory cards that are critical components of popular devices like MP3 music players and digital cameras.

In a proposal first made in August and revealed to investors after the American markets closed Tuesday, Samsung offered to pay $26 a share for SanDisk, more than 90 percent over its closing price of $15.04. SanDisk shares shot up nearly 50 percent to almost $23 in after-hours trading as investors reacted to the unsolicited bid.

SanDisk's founder and chief executive, Eli Harari, rejected the proposal in a letter made public Tuesday, saying that Samsung was significantly undervaluing the 20-year-old company.

"We believe Samsung's proposal does not provide appropriate value to our stockholders and is opportunistically timed at the trough of an industrywide downturn," Mr. Harari wrote.

The public fracas between Samsung and SanDisk calls to mind another highly publicized technology drama this year, between Microsoft and Yahoo. Like Microsoft, Samsung made its acquisition bid public only after what it says were months of private and unproductive discussions between the companies.

There is also a similar debate over the value of the company. SanDisk's stock has lost more than half its value over the last year as the $14 billion-a-year flash memory market suffers from a glut of inventory and becomes increasingly dominated by two large players: Samsung and its Japanese archrival, Toshiba.

SanDisk, however, has something that Samsung needs: intellectual property. Mr. Harari, a former Intel engineer, recognized the value of patents early on. The company has some 860 patents in the United States and 550 overseas. Samsung pays SanDisk $440 million a year to license those patents.

The companies were in negotiations to renew the agreement, which expires next August. SanDisk has complained that the uncertainty over that deal depressed its stock price, which Samsung is now exploiting.

One option for SanDisk is to find another company to swoop in with a better offer. But one potential suitor thought to be interested -- Seagate Technology, a leading maker of computer hard drives and former investor in SanDisk -- said it was not.

In an interview Tuesday, William D. Watkins, Seagate's chief executive, said the flash market was unattractive because Korean companies like Samsung benefit from government policies that give them access to cheap capital in a business that requires huge investments.

Mr. Watkins said that Mr. Harari is a friend but "Seagate can't come in and save SanDisk." Seagate will work with the surviving flash makers, he said.


   







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