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Western Digital Closes SanDisk Buyout: Good Deal?

Last week,Western Digital Corp. WDC completed the acquisition of SanDisk Corp. The two companies had entered into a definitive agreement on Oct 21, 2015. Per the agreement, Western Digital had to pay $86.50 per share for acquiring all the outstanding shares of SanDisk. The total transaction value comes to $19 billion.

However, Western Digital and SanDisk made a few changes to the deal price on Feb 23. Per the new agreement, Western Digital paid $78.50 in cash and 0.24 in stock for every SanDisk share, totaling $15.78 billion.

Western Digital also closed its earlier announced secured and unsecured notes offerings related to this merger. The net proceeds (totaling $5.225 billion), which had been earlier deposited into an escrow account, are now out from escrow and available to Western Digital. The proceeds were used to fund the SanDisk merger, refinance its indebtedness and that of SanDisk, and pay the related fees and expenses. This move is expected to lend flexibility to the company’s balance sheet position, going forward.

Synergies from the Acquisition

SanDisk is the largest supplier of NAND flash storage cards for data storage in a compact removable format. These are used in digital cameras, multimedia cellular phones, USB flash drives, gaming devices, laptop computers, personal computers, audio players and video players.

On the other hand, Western Digital derives the bulk of its revenues from the sale of hard-disk drives (HDDs), mainly used by PC manufacturers. The company is the largest U.S. manufacturer of HDDs with 44% market share, closely followed by Seagate Technologies’ STX 40%. However, the persistent decline in PC sales has been hurting Western Digital’s HDD shipments over the past several quarters, which in turn dented revenues.

Therefore, the world’s leading HDD manufacturer is trying to lower its dependency on PC storage and focus on the rapidly growing flash and cloud storage businesses to boost its top line.

The acquisition of SanDisk will open newer growth avenues for Western Digital and help in capturing market traction in the newer storage technology, Solid State Drive (SSD) segment. The merger will lead to economies of scale, lower costs, increase market reach and improve product breadth, among other things. The company will also be able to offer competitive solutions in cloud-based computing, which has taken the digital storage solution space by storm over the past couple of years.

Last Words

The acquisition is a reflection of Western Digital’s commitment to launch a string of storage devices under the mobile and cloud segment and add value for its customers.

Going forward, we believe that strategic acquisitions to expand its offerings in the SSD segment should position Western Digital better than peers like Seagate Technologies and EMC Corporation EMC

Currently, Western Digital has a Zacks Rank #3 (Hold).

Besides Western Digital, investors may consider TiVo Inc. TIVO , another Zacks Rank #1 (Strong Buy).

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WESTERN DIGITAL (WDC): Free Stock Analysis Report
SEAGATE TECH (STX): Free Stock Analysis Report
EMC CORP -MASS (EMC): Free Stock Analysis Report
TIVO INC (TIVO): Free Stock Analysis Report
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