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WD Shareholders Overwhelmingly Approve SanDisk Acquisition

By - Source: WDC
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Western Digital's mission to acquire the SanDisk Corporation is nearly complete as its investors voted overwhelmingly in favor of issuing the WD common stock required for the acquisition. More than 90 percent of the WD votes cast were in favor of the transaction, and 98 percent of SanDisk's shareholders approved the merger. The HDD market has experienced significant consolidation over the past few decades, but the integration of a NAND fab into an HDD vendor denotes a tremendous shift in the storage industry.

Western Digital originally planned to purchase SanDisk with funds, at least in part, allocated from a pending Unisplendour investment. However, the US CFIUS (Federal Committee on Foreign Investment) regulatory agency announced an investigation into the investment due to national security concerns, which prompted Unisplendour to withdraw from the agreement. 

The WD/SanDisk acquisition agreement included two sets of terms. The original terms of the deal were valid until Unisplendour bowed out of the picture, which triggered the requirement for a vote from Western Digital shareholders. Many viewed the deal to be in peril after the Unisplendour exit, largely due to the outspoken objections of the Alken Asset Management group.

Now that WD has shareholder approval, its next step is to secure the requisite funding for the transaction. Regulatory filings revealed WD's plans to assume $18 billion in debt through a series of loans that includes $9 billion in terms loans, $8.1 billion in bridge loans and $1 billion of revolving credit. Recent unconfirmed reports indicate that WD is already in the midst of negotiating the loans.

WD has an impressive credit rating and should not encounter any problems securing the funding. The only other potential obstacle to merger completion lies in the form of the MOFCOM Chinese regulatory agency. The agency has a history of placing harsh restrictions on acquisitions, as WD experienced in the past during its HGST merger, but it's unlikely to completely block the transaction.

WD's stock is down 5.35 percent (at the time of this writing) on the news of the merger, but it has yet to experience a full day of trading. WD's stock has fallen from $98.20, at the beginning of the year, to $45.61.

WD will continue to cooperate with Unisplendour in its joint systems marketing effort in the China region, which will likely include SanDisk's popular InfiniFlash platform. SanDisk also brings a host of other technologies, albeit with some glaring product overlaps, to the disk maker.

The most important SanDisk asset is its NAND-producing Flash Forward joint venture with Toshiba. Access to a guaranteed source of NAND (at cost) is a key advantage that will assure WD's future in the flash-powered era. The HDD market is exhibiting the characteristics of a secular decline, and WD will be well positioned to weather the coming data storage storms by bolstering its product stack with future technologies.

One of the few remaining questions is how Seagate will counter. Seagate already has an extensive strategic agreement in place with Micron, but whether that will be enough to stave off a full-on WD flash assault remains to be seen.

Paul Alcorn is a Contributing Editor for Tom's IT Pro, covering Storage. Follow him on Twitter and Google+.