Toshiba Could Be 'Gatekeeper' In SanDisk Buyout

• SanDisk Corporation (NASDAQ: SNDK) shares have been declining steadily in 2015 and are 30 percent down from their January 2 level of $97.88.
• Macquarie Research’s Deepon Nag maintained an Outperform rating on the company, with a price target of $70.
• A potential deal with Micron or Western Digital makes strategic sense, Nag noted.

SanDisk is reportedly in acquisition talks with Micron Technology, Inc. (NASDAQ: MU) and Western Digital Corp (NASDAQ: WDC). Analyst Deepon Nag mentioned that such a deal makes sense for both Micron and Western Digital.

Although SanDisk has a significant technological and strategic value, concerns remain about the company’s ability to compete as a standalone entity because of the execution issues in its SSD business and lack of internal DRAM production, Nag stated.

A potential acquisition by Western Digital makes sense in view of its cash rich position. Nag commented, “WDC recently sold a15% stake to Tsinghua Unigroup for $3.8 billion, which we believe gives the company financial flexibility to pursue a deal.”

“We believe that Western Digital makes sense as an acquirer given the secular risk to HDDs from SSDs, and estimate that a deal would be accretive even with conservative estimates for
Synergies,” the Macquarie Research report noted.

Nag believes that although the potential acquisition of SanDisk by Micron may be more complicated, it makes strategic sense. He added that Micron may be interested due to its struggles in the NAND market, while there could be some issues on account of its technology partnership with Intel Corporation (NASDAQ: INTC).

While TOSHIBA CORP (OTCMKTS: TOSBF), which has joint ventures with, SanDisk has the ability to veto a potential deal, it is unlikely to do so and instead approve a deal with Western Digital, Nag added.

A potential deal with Western Digital would lead to an increase in “Toshiba’s NAND flash demand if WD shifts procurement away from non-captive/non-partner sources,” the report stated. The existing joint ventures between Toshiba and SanDisk are likely see little change after the deal.