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Western Digital
shares rose on Wednesday afternoon after reports that the company is in “advanced” talks to merge with Japan-based Kioxia Holdings, a deal that would potentially bring about a third of the flash memory market to a company.
Shares of Western Digital (ticker: WDC) rose 7.9% to close at $ 65.50.
The potential deal, valued at more than $ 20 billion, follows months of talks between the two memory companies, and the companies could reach an agreement in mid-September, according to the Wall Street Journal. Citing unnamed sources, the newspaper said Western Digital would pay for the deal with shares and Western Digital CEO David Goeckeler would run the combined business.
Wells Fargo analyst Aaron Rakers estimated that the combined business would account for between 30% and 35% of the world’s flash storage production and revenue.
Western Digital declined to comment. Kioxia did not immediately return any requests for comment.
Should the deal occur, it would provide a batch of flash memory manufacturing assets under Western Digital’s roof, including equipment and intellectual property. Currently, the two companies do business together through a joint venture, but folding Kioxia would give Western Digital control over flash memory production. It would also transfer the financial impacts (including capital expenditures) related to the joint venture to Western Digital’s financial statements.
An agreement with Kioxia would give Western Digital tighter control over the supply of flash memory, according to Baird analyst Tristan Gerra. Memory is a commodity business and may be hampered by periods of excessive or insufficient memory, but control over the manufacture of Kioxia would allow Western Digital to tune its production more strongly.
“I think it gives them flexibility,” Gerra said.
The newspaper said the deal had not been completed and that Kioxia could still choose to make the company public through an initial public offering, which it planned to complete last year until it pulled out plans due to the conditions of the market.
Kioxia is a widespread company that manufactures flash memory in data centers, smartphones and other types of storage. Kioxia has held talks with Western Digital and Micron Technology (MU), which have been less interested in a possible transaction, the newspaper said. Shares of Micron were up 2.9% to end Wednesday’s regular session at $ 74.04.
An agreement would mean the approval of the regulator in Japan, China and the United States JoThe United States, Congress, and the White House have debated the importance of ensuring sufficient domestic manufacturing capacity. It was not immediately known what implications a possible merger of Western Digital with Kioxia would have for its future memory manufacturing facilities, if any.
Earlier this year, the Journal reported that the deal would be valued at about $ 30 billion. According to FactSet, Western Digital’s market value is approximately $ 18.9 billion. Kioxia was once
Toshiba
memory chip drive. It is controlled by a group of investors that once included Bain Capital,
SK Hynix,
Toshiba and others.
Chip manufacturers have begun to consolidate as they substantially increase the costs of designing and manufacturing complex silicon-based technology. Companies without a sufficient scale have trouble competing in markets where the design of the most advanced chips costs more than $ 500 million.
But much of the consolidation has come out of the memory business. Last year,
Nvidia
(NVDA) announced its intention to buy Arm for $ 40 billion, a deal that has been hampered by various regulatory investigations into its implications. Several large technology companies have vocally opposed Nvidia’s plans to acquire the chip technology company
SoftBank Group.
Advanced Micro Devices (AMD)
announced a purchase plan
Xilinx
for $ 35 billion and Marvell has made two acquisitions: it bought Inphi for $ 10 billion and, more recently, said it was buying Innovium for $ 1.1 billion.
However, there have also been memory deals.
Intel
(INTC) agreed to sell its memory chip unit to South Korean SK Hynix in 2021.
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