A Sumsung - Sandisk Acquisition?

A Sumsung - Sandisk Acquisition?

Samsung and Sandisk have confirmed discussions about an acquisition. This would be a brilliant move for Samsung, but doesn't serve Sandisk's shareholders well at all.

Samsung is considering buying Sandisk as reported here this morning.  

An acquisition by Samsung would be brilliant, at least for Samsung.  This large, broad Korean consumer electronics giant is increasingly dependant of Sandisk's NAND chip technology in virtually everything that they do.  They are already paying Sandisk roughly $400 million in royalties each year and they could wipe those payments clean by buying Sandisk which has a market capitalization today of still only around ten times that.  Plus, they are buying the leader in an emerging technology that all devices and computers will become increasing reliant on.

Sandisk has been a terrible investment for everyone near it.  The stock recently cascaded below 20, which had been its 5 year low and got all the way down to 13 yesterday and a few weeks ago after earnings.  While there is little to be excited about today, the future should lead to a NAND pricing rebound and just greater and greater penetration of the technology, which they basically own.  The stock traded at 78 two years ago.  There is no reason why it cannot get back there in two or three years time.

If Samsung can acquire Sandisk for around $4 billion it would be a brilliant move for them.  They'll own the technology and be able to box out Toshiba and other rivals.  They'll even have Intel over a barrel.  I wouldn't be surprised to see those companies also bid if the price is right.

But, any sale of the company by Sandisk at this point in the cycle would be terribly disappointing for the company's long term investors. 

I've heard the CEO speak. It is entirely unclear what he is going to do.

Ari Socolow
Ari Socolow: Ari Socolow is the Chief Economist and Editor-in-Chief at BestCashCow. He is particularly interested in issues relating to financial literacy and bank transparency. Since co-founding this website in 2005, Ari has been frequently cited in the media as an expert on local and national savings accounts, CD products, mortgage and loan products and credit card rewards products.

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