By
Temitope Olatunji
March 11th, 2024
If the proposed merger between Western Digital and Kioxia Holdings fails as speculated, the firm may embrace the option of its long-planned IPO.
American computer hard disk drive manufacturer and data storage company Western Digital Corp (NASDAQ: WDC) is reportedly closing talks to acquire privately-held Japanese chipmaker Kioxia Holdings Corp in a deal that could be worth about $20 billion. As reported by the Wall Street Journal, citing people close to the matter, the merger talks, which have heated up in the past weeks, can be finalized as early as mid-September.
According to the sources, Western Digital wants to pay for the deal through stocks, and the combined company when the merger is finalized will likely be run by its Chief Executive, David Goeckeler. While there are no indications the merger is bound to be successful considering the robust regulatory approvals required to make it scale through, any recorded success will push Western Digital up the ladder in the robust NAND flash-memory chips industry.
Memory chips which are largely used in mobile phones, TVs and other electronics are currently in high demand globally. A shortage was recorded earlier as the COVID-19 pandemic which stirred work from home reduced production capacity. The high demand for chips in the gradual switch to 5G tech has also further placed a strain on the products. The potential Western Digital-Kioxia merger will position the firms to take on this challenge and extend their current market share, which is pegged at 19% for Kioxia, and 15% for Western Digital respectively.
“Such a deal would be a defensive, but prudent, move by Western to reinforce its competitive position in the swiftly consolidating chip market,” Morningstar analyst William Kerwin said in a research note. “In the long term, we expect the NAND market to … consolidate down to about three leading players for a largely commodity-like product.”
The deal will seek to help both firms topple the dominance of Samsung Electronics Co Ltd (KRX: 005930) which controls a third of the global chips market.
Kioxia May Explore Other Options if Western Digital Merger Fails
Should the proposed merger between Western Digital and Kioxia Holdings fail as speculated, the firm may likely embrace the option of its long-planned Initial Public Offering (IPO). While the $20 billion offer looks attractive in Kioxia’s books, the company’s product and client base are solid grounds for its public market entry.
The company is part-owned by Toshiba Corp (TYO: 6502) who maintains a 40.6% ownership of Kioxia after selling part of the firm to a Bain Capital-led entity back in 2018. Toshiba says it has no influence on the company’s operations, however, Reuters reports the firm is considering the best investment approach in the company to maximize its shareholder value.
Kioxia is in talks with about four global private equity firms to seek their ideas for a new strategy, all of which could either culminate in the Western Digital deal finality or the IPO. The shares of Western Digital are up 7.80% following the merger news, pushing its share price to $65.50 and a market capitalization of $20.07 billion.