Western Digital-SanDisk Tie-Up? What You Should Know

• Western Digital Corp WDC share are down 28 percent year-to-date, and are trading significantly below their 52-week high of $114.69.
• Stifel’s Aaron Rakers maintained a Buy rating on the company.
• Western Digital’s balance sheet has become stronger, which supports the probable acquisition of SanDisk Corporation SNDK.

MOFCOM has given its approval to Western Digital to immediately commence the integration of a substantial portion of the acquisition of Hitachi Global Storage Technologies [HGST].

This follows the news of China-based Unisplendour’s equity investment worth $3.775 billion in Western Digital, which would give the former company a 15 percent ownership, with about 41 million shares and a board seat.

These developments would trigger increasing speculation of Western Digital looking to acquire SanDisk [Rated: Buy]. Bloomberg reported that such a deal could come as early as this week.

“As such, while we have no knowledge of any M&A discussions or negotiations between the companies,” analyst Aaron Rakers wrote, while adding that there could be “high-teens accretion from the combination,” although this guesstimate is based on “many variables.”

Rakers said that the possibility of Western Digital acquiring SanDisk is backed by the following:

1. Following Unisplendour’s equity investment, Western Digital has a strong balance sheet and significant debt capacity.
2. Western Digital has a leadership positioning in the enterprise SAS SSD market. Investors could continue to focus on vertical integration of NAND Flash, “especially as we believe we are seeing an increasingly inflection in the adoption of all-Flash offerings in the primary storage market; consider the importance of ramping 3D NAND as we look through C2016 and beyond.”