WSJ reports Sandisk intends to reject Samsung's bid

This could get pretty interesting.

Samsung proposes $26 cash for Sandisk

-- s
s

Combination Would Deliver Substantial Immediate and Long-Term
Value to Shareholders of Both Companies

Combined Business Would Have Superior Global Brand, Unparalleled
Technology Platform and Scale, and Resources to Drive Convergence
SEOUL, Korea--(Business Wire)--
Samsung Electronics (005930:KS) ("Samsung") today announced that
it has sent a letter to the Board of Directors of SanDisk (NASDAQ:
SNDK) ("SanDisk") reiterating its proposal to acquire SanDisk for $26
per share in cash.

The full text of the letter follows:

-0-
*T
September 17, 2008

Board of Directors
SanDisk Corporation
601 McCarthy Boulevard
Milpitas, CA 95035
Attention: Dr. Eli Harari, Chairman and Chief Executive
Officer
Mr. Irwin Federman, Vice Chairman and Lead
Independent Director
*T

Dear Eli and Irwin:

We are in receipt of your letter dated September 15, 2008 and are
deeply disappointed that after four months of discussions and meetings
- in Seoul and San Francisco - about a possible business combination,
SanDisk Corporation ("SanDisk") continues to cling to unrealistic
expectations on both its standalone market value and an appropriate
merger price. Under our proposal, which we are reiterating here, we
remain prepared to acquire all of the outstanding shares of SanDisk
for $26 per share in cash. As you know, our proposal is not subject to
any financing contingency and the entire purchase price will be funded
with our cash on hand and available financing.

This offer is full and fair and we believe that, given an
opportunity, your shareholders would agree. It constitutes a very
substantial premium to SanDisk's share price and would deliver to your
shareholders an immediate cash premium of 93% over SanDisk's closing
share price on September 4, 2008, the day before news reports
indicated that we were in discussions about a business combination.
Furthermore, it is a premium of 80% over your closing share price on
September 15, 2008, and a 66% and 164% premium to your 30-day weighted
average price and enterprise value as of September 4, 2008,
respectively.

Despite the significant premium we propose to SanDisk's current
stock price, your letter states that our proposed price does not
"reflect the intrinsic value of SanDisk's business" and references the
52-week high. The world has changed dramatically in the past 52 weeks
as can be seen from SanDisk's own disappointing results. Consumer
spending and the overall economic situation have been getting worse.
It will take the NAND flash market quite a bit of time to recover.
Notwithstanding the current market conditions, to stay competitive,
SanDisk will need to fund critical investment and development over the
next several months - cost cutting alone will not suffice. Our offer
insulates your shareholders from the risk of market conditions that
have severely deteriorated and are expected to remain challenging. As
highlighted above, we strongly believe that there is significant
execution risk of achieving any stand-alone plan.

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. For this reason, and the fact that speculation has grown
since the early September news reports, we feel compelled to clarify
our intentions publicly.

Compelling Business Logic

Our many meetings and conversations over the last several months
have served to confirm for us that 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. With
SanDisk's innovative culture and technology leadership and Samsung's
scale, leadership in manufacturing and execution, and strong systems
and consumer electronics segment knowledge, the combined company would
be well positioned to accelerate the adoption of flash memory
technology in new markets. We can also establish the platforms and
capabilities necessary to position flash as the preferred vehicle for
delivery and storage of a wide variety of content, such as film, in a
way that would not be possible for either of our companies alone.

As we have seen in recent months, markets have become more
turbulent and global economic trends are negative. At the same time
the competitive environment remains challenging. To survive and
compete in these times we will each need to leverage our resources and
rely upon a strong balance sheet to fund critical investment and
development through good times and bad. Separately investing in
necessary state of the art facilities will be a significant tax on
your business in the near term. In addition, reliance on IP and
enforcing it is a costly and uncertain business for both our
companies. Faced with these challenges, now is the time to merge.

SanDisk's Management and Employees

SanDisk is widely recognized for the quality of its people and its
culture of innovation. For our part, that is a key reason we are
attracted to your company and a significant portion of the transaction
value to us is represented by the talented management and employees
that we hope would continue to work for the company going forward. Our
intention is to operate SanDisk as a separate subsidiary company
inside of Samsung and to maintain the environment that has contributed
to your success. We have a long term commitment to the space,
financial stability and a strong desire to grow the SanDisk platform,
thereby creating significant new opportunities for SanDisk employees.
We do not plan to cut jobs - rather, we want to work with you to find
the best way to structure incentives to retain and motivate your key
talent following the transaction.

Process and Deal Certainty

At our July 22 meeting in San Francisco you proposed a process in
which Samsung would forego customary due diligence, not only until all
transaction terms including price are finalized and documented, but
also until we had completed negotiation and execution of a replacement
IP licensing agreement and a new supply agreement, neither of which
would ever come into effect if an acquisition transaction were
finalized. You have also requested as a condition to moving forward
that we provide you with some form of assurances as to regulatory
approval.

Although there had been a lack of progress over 14 months of IP
discussions, we dedicated significant time and energy to follow the
path you outlined in order to reach an agreement. Unfortunately, the
process you outlined in July has resulted in no meaningful progress
toward a transaction in the intervening eight weeks. Despite our
substantial efforts on the IP front, you have agreed to schedule only
two meetings since July and during those meetings you have been
unwilling to engage with us on any productive proposals that
adequately recognize the changed market dynamics in your markets and
the decline in value of your patent portfolio in the period since the
IP license was last renewed.

As to the regulatory process, we have repeatedly expressed our
confidence that this transaction will receive all necessary
governmental approvals and we remain willing to immediately engage
your experts to discuss the regulatory process. You have yet to even
identify to us who is acting as your counsel on these issues. Having
dedicated significant time and resources in evaluating this
combination with our external counsel, we do not foresee any issues
that could not be resolved. We again extend the invitation for your
advisory team to engage with our counsel, subject to customary
protective provisions, to share our respective views on this topic.

Confirmatory Due Diligence

Although we have completed extensive preliminary due diligence
based on publicly available information, our proposal is of course
subject to confirmatory due diligence and the negotiation of a
definitive merger agreement. Key due diligence topics that underlie
the value in our offer include your relationship with Toshiba,
forecasted operating plans, R&D projects, technology roadmaps, key
employees and pending litigation.

Again, it continues to be our strong preference to work together
with the SanDisk Board to reach a mutually agreeable transaction. We
have drafted and are prepared to send to you a due diligence request
list and a draft merger agreement. We again urge you to engage with us
promptly in a productive discussion about our proposal.

Sincerely,

-0-
*T
Yoon-Woo Lee
Vice Chairman and Chief Executive Officer
Samsung Electronics Co., Ltd.
*T

Financial and Legal Advisors

Samsung has engaged J.P.Morgan Chase & Co. and Allen & Company LLC
as its financial advisors, and Sullivan & Cromwell LLP as its legal
advisor in connection with the proposed transaction.

About Samsung Electronics

Samsung Electronics Co., Ltd. is a global leader in semiconductor,
telecommunication, digital media and digital convergence technologies
with 2007 consolidated sales of US$103.4 billion. Employing
approximately 150,000 people in 134 offices in 62 countries, Samsung
consists of four main business units: Digital Media Business, LCD
Business, Semiconductor Business and Telecommunication. Recognized as
one of the fastest growing global brands, Samsung is a leading
producer of digital TVs, memory chips, mobile phones and TFT-LCDs. For
more information, please visit www.samsung.com.

Forward Looking Statements

This press release contains forward-looking statements, including
those related to Samsung's proposal to acquire SanDisk, which are
subject to various risks and uncertainties, which could cause actual
events or actual results to differ materially from those expressed or
implied in the forward-looking statements contained in this press
release. Among other factors, the proposed transaction described in
this press release could be affected by whether the proposed
transaction receives the support of SanDisk and can be completed
timely and successfully as well as changes in the economic and
business environment. Many of the factors that will determine the
outcome of the subject matter of this press release are beyond
Samsung's ability to control or predict. All information in this press
release is as of September 17, 2008 and Samsung disclaims any
obligation to update any forward-looking statements whether as a
result of new information, future events or otherwise.

Sard Verbinnen & Co
Jim Barron or Kathryn Kranhold
New York - +1-212-687-8080
or
Elizabeth Hanahan or Lucy Neugart
San Francisco - +1-415-618-8750

Copyright Business Wire 2008

Hewlett Packard – what you see is not what you’ll get

 

Last night HP offered some estimated cost savings from the EDS acquisition. They also reiterated guidance for the quarter.

 

Dell does 95% of their business direct to customers. Hewlett Packard, on the other hand, sells to distribution. This creates a ready-to-go inventory channel for the company. It also allows them to say business is fine without talking about the dynamics of fine. It would be very surprising if Ingram Micro and Dell saw all this weakness and it wasn't affecting purchases of HP machines. I think inventory in the channel has to be high. Typically HP stocks distributors during the summer in anticipation of the "back to school" fall and begins to stock in front of the holiday buying seasons. If they're not seeing weakness in this quarter, I would expect they'll see it in the next.

 

I think the strength in the stock is a great time to get short the stock. They're telling you that their customers haven't yet pulled back when their customers are telling you that demand is materially below their expectations. That's a setup for disappointment going forward.

 

Toshiba talks of counter-bid for Sandisk

This is strange as Samsung hasn't made a bid yet, but buried in an article on the tape:

 

"We need to take preventive steps, if (SanDisk) looks like

it'll be acquired," Corporate Senior Vice President Shozo Saito

told reporters on the sidelines of the Industry Strategy and

Technology Forum on Tuesday.

When asked about the possibility of a bid, he said Toshiba

"was interested" but added that it was not in concrete talks.

 

Sandisk is going to have a disaster of a quarter. No hurry here.

[5:36pm: Samsung had in fact already made an undisclosed bid.]

IT falls into a black hole of demand

 

For the second time in a month, Dell is on the tape pre-announcing. Ingram Micro, the largest worldwide distributor of IT products, sang a similar tune. Dell says worldwide demand is still bad. Ingram Micro says Europe did not rebound after the summer as it typically does. Tomayto, tomahto.

 

Tech seems to be getting relatively inexpensive. But then again, it seems like everything else is getting cheaper too. I've bought a couple of stocks because they're cheap. They seem like mistakes now.

 

A couple of weeks ago I had suggested Dell belonged in the mid-teens. We're almost there. I have a feeling this collateral damage from the credit markets is likely to make you wrong even if you're right on fundamentals here. It's not like you see a lot of stocks jamming on good earnings.

 

Material weakness at Dell and Ingram Micro likely means ripples through the supply chain. Expect Q4 outlooks to come down pretty hard. HPQ looks pretty vulnerable as they're a big Ingram Micro supplier.

 

 

The shape of things to come

"Let the old world make believe
It's blind and deaf and dumb
But nothing can change the shape of things to come"

• The Ramones
  
  

Watching CNBC yesterday was like watching CNN during a hurricane – every report was about the financials – why Bear and not Lehman, why buy Merrill when it was clearly going to get cut in half on the Lehman news, will anyone (please?) rescue AIG… more like an extended plea than reporting. Paulson gets up there and blames it all on housing was perhaps the most chilling and telling moment. He doesn't get it.

 

When Bank of America can walk into Merrill and 48 hours later decide it's worth paying a massive premium to buy them, it seems the people who really should know if things are stabilizing couldn't possibly. 48 hours is an incredibly short time to do due diligence on so massive a risk proposition. They were afraid to miss it? Seriously? They bought Countrywide a few months ago – could Countrywide really be fully realized? The only thing they've accomplished is they've made themselves too big to fail and the Fed may say they're not backing anyone but they're backing BAC if it gets stuck whether they want to or not.

 

What we have is not the aftermath of a housing bubble. We have a financial product bubble. This is a big distinction. Housing is a bubble within a larger bubble, a symptom of the deeper problem of newfangled credit products that buyers and sellers alike seemed to not understand. Risk on top of risk on top of risk – in the same way Long Term Capital was leveraged 100:1 and saw it's bet go awry – this is the underlying ailment. What we are looking at will not be solved by saving Bear or by taking the GSE's into receivership. An 11^th hour sale of some AIG asset with intangible downside will not rescue the system. We are watching a massive unwind of leverage of unprecedented proportions at all levels of finance. Thar will be blood.

 

When the internet stocks crashed, there was no big retracement rally. The stocks went down and down and down and ultimately sat there. For years. And no one cared. They were hopeless, doomed, unloved, cast aside like a bad memory. They had gone from the front pages to the pink sheets. They had come off of people's quote screens. Everyone was not watching one stock (AIG) for a green light. They were NOT every single story on CNBC. They were gone.

 

The truth of the matter is this will take time. And pain. A lot of it.

 

 

Marvell (MRVL) 2Q:2009 results

Marvell beats revenue estimates by about 9 mil and beats gross margin estimates by almost a percent. Non-gaap EPS are 3 cents better than consensus.

Marvell's good fortune seems very out of line with the ills of their hard drive customers and I would not buy the stock despite the upside. Hard drive controllers are the major driver of business for Marvell -- Seagate and Western Digital both pulled the reigns in pretty hard. Guidance should be conservative. If it isn't and the stock rallies, I'd short it. I have no position at present.

Dell 2Q:2009 results

Dell reports revenues ~400mm better than expected. Costs, however, rose more than sales quarter over quarter, leading to a gross margin shortfall of almost 1% (17.2% with 18.1% expected). Naturally, operating profit came in worse -- about an 7% miss eyeballing it. They say that the United States IT spending environment remains cautious and that they expect slower growth in Western Europe and several countries in Asia.

I expect the lack of the currency benefit to impact reported results for companies that saw big benefits in recent quarters -- specifically, I've cited Google, Dell and IBM as likely to look less attractive without the foreign exchange benefit. I am short Google, Dell and IBM on this basis.

Dell trades at close to 15* earnings and is growing in the mid single digits. As the economic malaise is just beginning to set in world-wide, I would expect their multiple to bleed and the stock to trade somewhere in the mid teens over time (probably lots of it).

STEC design win in Dell ultramobile

According to storage news website blocksandfiles, STEC got a design win at Dell for a million units.

The Nine (NCTY) under pressure

A sell side firm is making a call that they'll lose the World of Warcraft license in 2010.