Mockup
Looks as if those rumors of a Samsung buyout were true after all. The board of directors at SanDisk were sent the following proposal to swoop the memory manufacturer at $26 per share, cash. The letter states that SanDisk investors would see a 93 percent premium based on the surge SanDisk’s stock saw when it was first reported that Samsung was interested. And it basically goes on from there.
UPDATE – On the wires right now: Sandisk rejects Samsung’s “unsolicited offer.” More as we get it.
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.