3 Reasons A SanDisk Buyout Makes Sense

• The share price of SanDisk Corporation SNDK have declined 38.11 percent year-to-date, from a high of $97.38 on January 8.
• Srini Sundararajan of Summit Research has maintained a Buy rating on the company, with a price target of $85.
• Following news of SanDisk contacting bankers, Financial Times reported that Micron Technology, Inc. MU and Western Digital Corp. WDC have approached the company.

Analyst Srini Sundararajan believes that there are three reasons why SanDisk would be “amenable” to a merger. Firstly, the NAND industry “is in the midst of a once in 20 year inflection point going from 2D NAND to 3D NAND.”

Secondly, 3D Crosspoint is faster and nonvolatile, as compared to NAND and is therefore expected to grab market share from NAND.

Thirdly, according to the Summit Research report, “It is better to bulk up so you have to have heft to negotiate with Apple Inc. AAPL, the biggest consumer of NAND.”

Sundararajan also pointed out that SanDisk’s 52-week high market cap was approximately $22 billing and that the stock it currently trading at $12.6 billion. Therefore, “if you split the difference we think that a $17B offer might be palatable to SNDK,” Sundararajan said.

This also means that both Micron Technology and Western Digital would need to go into debt to acquire SanDisk, unless Tsinghua Unigroup helps out with capital. Tsinghua has also helped Western Digital out with a $3.8 billion investment, while Micron Technology has received an offer of $23 billion.

Sundararajan believes that “Tsinghua/ China wants access to both HDD/ SSD and DRAM technology,” and therefore sees Tsinghua “favoring helping MU.”