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Thursday, September 18, 2008

Sandisk faces a dilemma

In their disclosure of their $26 offer for Sandisk, Samsung asked for information about their "relationship with Toshiba, forecasted operating plans, R&D projects, technology roadmaps, key employees and pending litigation". This is pretty much an espionage shopping list in my opinion.

The following day, a mysterious story appeared in the Japanese press discussing Toshiba’s results being well below forecast. The company refused comment. That smells like a plant to me that highlights Toshiba’s own problems in NAND manufacture and potentially puts them in a shareholder unfriendly spot if they look to double up on NAND (which is what buying Sandisk would effectively do for them as Sandisk is their 50% partner in NAND).

Samsung did not make an official offer. This is similar to what Microsoft did with Yahoo and what Electronic Arts did with Take Two. In doing so, they reserve the right to walk away. This is sort of a no-lose situation for Samsung in that they could get access to their primary competitor’s trade secrets and leave them hanging.

I don’t envy Sandisk’s management who are likely to face shareholder pressure to pursue the deal with Samsung. I think Toshiba will be hard pressed to put up the cash to counter. I totally question Samsung’s true motives. And I also don’t blame them for wanting to understand the JV structure better. I would also like to understand it better and Sandisk’s JV disclosure is foggy to say the least. As I’ve said before, Sandisk’s JV structure seems to seek to mask manufacturing operations, not shed light on them.

Good move, Samsung. Good luck, Sandisk.

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