Western Digital Shareholders Vote On The SanDisk Deal Today

Brean Capital’s Ananda Baruah maintained a Buy rating for Western Digital Corp WDC, while reducing the price target from $150 to $120. The analyst believes there is substantial appreciation potential, with shareholders set to vote on the deal with SanDisk Corporation SNDK later today.

Regardless of the outcome of Western Digital shareholders voting on the SanDisk deal, the former’s shares have significant upside of 25-133 percent, “depending on purchasing shares ahead of or after deal close,” analyst Ananda Baruah said. The outcomes may be deal approval, deal denial, deal re-pricing or original economics.

Comparison With Street Expectations

Baruah believes the deal could result in very attractive net income synergies as well as equity appreciation, even under the current terms of the deal. The synergy estimate is at around $800M in the first 6 quarters, versus Street expectation of $500M. The MOFCOM COGS benefit estimate of at least $300M - $400M compares with Street expectation of $250M.

Potential Repricing

The analyst believes that there could be a repricing conversation, given the deal’s price premium paid for SanDisk, the company’s softening fundamentals since the deal was announced, recent pullback in the shares of comparable stocks as well as the complexity regarding shareholders’ view of the deal.

Western Digital may have been able to acquire SanDisk for 30 percent less had the deal happened today, while SanDisk’s shares have the risk of plunging 30-50 percent in case Western Digital is unable to get support for deal completion.