Here's How Much SanDisk Would Help Micron

• Media reports have suggested that Micron Technology, Inc. MU might be in talks with SanDisk Corporation SNDK’s management to acquire to company.
• In a recent report, analysts at Jefferies share a few reasons to believe this combination would be positive.
• Shares of both companies were up considerably on Wednesday.

According to Jefferies analysts led by Sundeep Bajikar and Mark Lipacis, a potential Micron-SanDisk merger would result in "a stronger U.S. memory-maker capable of competing more effectively with Samsung and SK hynix across DRAM, NAND, and new technologies like 3D XPoint." The analysts also believe that the resulting industry consolidation could lead to further structural improvements in the industry’s pricing dynamics and profitability.

Related Link: 3 Reasons A SanDisk Buyout Makes Sense

The note assured that a potential combination of SanDisk and Micron could catalyze an improvement in NAND industry dynamics, similar to what happened with the DRAM industry, where profitability ameliorated on the back of a reinforced supply and pricing discipline. In NAND, "technology alignment and collaboration among Micron, Intel, SanDisk, and Toshiba," could result in a similar situation.

In addition, the analysts believe the merger would be useful to "fend off potentially opportunistic bids from memory industry outsiders like WD, Seagate, or China Inc., all of which would continue to remain interested in strategic supply of NAND and DRAM."

Assuming a premium of roughly 30 percent ton Tuesday's closing price and an all-cash purchase (financed by straight debt at an 8 percent interest rate), Jefferies estimates that the combined entity could be accretive to Micron. The analysts envision 2016 earnings of $2.92 per share, 10 percent higher than the earnings Micron would generate on its own.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.