Will Toshiba save SanDisk, parry Samsung?
Samsung is laying a lot of money on the line to acquire SanDisk, but it faces a potential trump card in Toshiba's links to the flash memory maker.
Toshiba to the rescue? The Japanese electronics giant may try to stave off a Samsung takeover of SanDisk.
In the aftermath ofand SanDisk's unceremonious rejection, Toshiba looms as a large and potentially obstructive factor to a deal.
Toshiba and SanDisk have a partnership dating back to 1999 and operate two joint ventures called Flash Partners and Flash Alliance, as EE Times spelled out this week in an analysis of the dynamics of a possible deal.
SanDisk has a 49.9 percent interest in each of the two joint ventures, which also involves funding research and development expenses.
This means Toshiba is far from just a bystander. "Toshiba will clearly counter," said Avi Cohen, managing partner at Avian Securities, in a research note issued this week.
Cohen listed reasons why the deal could be problematic, including the fact that if Samsung buys half of the joint venture with Toshiba, "a Japanese company will become a junior partner to a Korean company which we think is unlikely." More problematic is that current "raw NAND customers of Samsung would be competing on the finished product side with their only supplier - both untenable and competitively harmful developments," he wrote.
Japan-based reports also point to possible resistance from Toshiba. The Mainichi Shimbun, one of Japan's largest dailies, cited possible resistance to the deal as it would force Toshiba to re-evaluate its semiconductor strategy.
That's not to say that SanDisk doesn't need help. It is a laggard in the growing market for solid-state drives--where Samsung is currently the leader--and has been caught in a brutal downward spiral of flash memory prices.
As SanDisk's profits have been squeezed, its stock has plunged over $60 per share over the last two years.
All this makes for a vulnerable takeover target. SanDisk's chairman and CEO, Eli Harari, said earlier this week that the $26-a-share bid from Samsung was "opportunistically timed at the trough of an industry-wide downturn."
Samsung will not go away anytime soon, however. Indirectly, it has a large stake in SanDisk. Samsung pays more than $400 million annually to use SanDisk's flash memory patents, dwarfing payments by any other company.
Some analysts also believe that SanDisk can't afford to reject an offer from Samsung in a down market, according to a Reuters report.
On the other hand, other factors working against the deal include objections from regulators because of the overwhelming market share (almost 50 percent) the combined entity would have, according to Cohen.
Samsung is the second largest chipmaker in the world behind Intel, and the largest supplier of flash memory.