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Samsung Pursuing Reluctant SanDisk

SEOUL, SOUTH KOREA —Although memory-card maker San Disk rebuffed its $5.8 million unsolicited buyout proposal, Samsung Electronics “remains completely committed to this transaction but is willing to be patient,” a person close to Samsung told TWICE at press time.

The $26/share cash offer “is full and fair,” the person said.

Samsung is the world’s leading maker of flash-memory chips, and SanDisk is the top supplier in the U.S. market of memory cards that use flash-memory chips. SanDisk gets most of its memory chips from its joint venture with Toshiba.

For its part, SanDisk “is always open to anything that increases shareholder value,” a SanDisk spokesperson told TWICE at press time.

Neither SanDisk nor Samsung would say if they communicated after SanDisk sent the Samsung board a letter in mid-September to decline the offer. In that letter, the SanDisk board said it “is open-minded about a transaction with Samsung if it represents a price that recognizes the long-term intrinsic value of SanDisk and the significant synergies that accrue to Samsung, provides deal certainty to SanDisk, and can be conducted in a process that adequately protects the interests of SanDisk’s stockholders.” The current proposal, however, “falls well short on all counts,” the letter said.

In the letter, SanDisk’s board also called the buyout proposal “an opportunistic attempt to take advantage of SanDisk’s current stock price, which is significantly depressed given industry cyclicality, the uncertainty resulting from the unresolved patent cross-license agreement renewal [expiring in 2009] with Samsung, and general equity market conditions.” The proposal, the letter noted, could be a “calculated negotiating ploy or an attempt to gain leverage in the ongoing licensing negotiations between the companies [over SanDisk flash-memory technology].”

Samsung responded to the rebuff with its own letter to SanDisk’s board, underscoring its intent to pursue the deal. “While it has been and remains our strong preference to continue to work with you to reach a binding merger agreement in a cooperative and expeditious fashion, we have become increasingly concerned that the lack of progress is not serving the interests of either company’s shareholders,” the letter stated.

Samsung, which has top share in also a major flash-memory maker, contended the “combined company would be well positioned to accelerate the adoption of flash-memory technology in new markets.”

Samsung also called the business logic of its proposal “compelling,” saying a combined Samsung-SanDisk would have “a superior global brand, an unparalleled technology platform and the scale and resources to drive convergence in the marketplace.”

Samsung said it would operate SanDisk as a separate subsidiary “to maintain the environment that has contributed to your success.” Samsung also has no plans to cut SanDisk jobs, the letter said.

For its part, SanDisk also cited uncertainty that the merger of the two flash-memory giants will pass regulatory muster and does not provide protection to SanDisk’s stockholders if a transaction doesn’t close.