File Photo: KIOXIA gadgets are on display at COMPUTEX Taipei, one of the world’s largest computer and technology trade fairs, in Taipei, Taiwan, May 24, 2022. Portal/Ann/File Photo Acquire LICENSE RIGHTS
TOKYO, Oct 27 (Portal) – Western Digital (WDC.O) and Japan’s Kioxia Holdings have called off merger talks after failing to agree on terms, two people said on Friday, in the latest stumble over a break-up Deal to create one of the world’s largest memory chip manufacturers.
The collapse of the talks came after South Korea’s SK Hynix (000660.KS) – a major Kioxia investor and rival to both the US and Japanese companies – said just a day earlier that it was abandoning the deal due to its impact on does not support the investment value.
Still, both sides remain interested in completing the deal, the two people said. There have been repeated merger talks between the two memory chip heavyweights since 2021.
Although talks were stalled, representatives from Western Digital and Kioxia, formerly Toshiba Memory, were working on the sidelines to iron out difficulties, including securing Hynix, one of the people said.
The two people familiar with the matter did not want to be identified because the information has not been made public.
The Nikkei business newspaper, which first reported the news, said the companies had also been unable to agree terms with top Kioxia shareholder Bain Capital.
The combined company would control a third of the global NAND flash market, tied with top player Samsung Electronics (005930.KS), and threaten the position of Hynix, the world’s third-largest NAND flash memory maker.
Kioxia declined to comment. Western Digital and Bain Capital did not respond to Portal’ requests for comment.
Shares of Western Digital plunged 9.3% on Thursday on the news.
Antitrust issues
Asked about the cancellation, Japanese Industry and Trade Minister Yasutoshi Nishimura told reporters the government would monitor the situation and continue to support Kioxia as the company is a key maker of advanced chips.
The companies sought a merger amid a global chip glut and weak demand for flash memory chips that have increased pressure on chipmakers to consolidate.
Since they first began merger talks two years ago, negotiations between Kioxia and Western Digital have often stalled due to a range of issues, including valuation discrepancies. There are also concerns about potential antitrust issues, with Chinese regulators posing a major hurdle.
The merger would have given the companies “the opportunity to reduce costs and be a more effective competitor in the marketplace,” said Mark Miller, an analyst at Benchmark Company.
“But it was a very complicated deal. I’m also not sure China would agree to the deal.”
The companies reported a total loss of about $1.4 billion in their most recent quarterly reports.
Last year, Western Digital launched a review of strategic alternatives after activist Elliott Investment Management disclosed a nearly $1 billion stake in the company and urged it to divest from those businesses.
As Portal reported last week, Japan’s top banks were expected to provide 1.9 trillion yen ($12.63 billion) to finance the merger.
SK Hynix invested 395 billion yen in Kioxia in 2018 as part of a Bain-led consortium that bought the Japanese company from Toshiba Corp (6502.T) for 2 trillion yen. It holds convertible bonds that can be converted into an equity stake of up to 15% in Kioxia, and its consent was one of the conditions for the merger.
($1 = 150.4200 yen)
Reporting by Yoshifumi Takemoto, Makiko Yamazaki and David Dolan in Tokyo, Aditya Soni, Juby Babu and Chavi Mehta in Bengaluru; Editing by Shweta Agarwal; Maju Samuel and Muralikumar Anantharaman
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