- Says Proposal is Inadequate in Multiple Respects and Not in the
Best Interests of SanDisk's Stockholders -
MILPITAS, Calif.--(BUSINESS WIRE)--Sept. 16, 2008--SanDisk(R)
Corporation (NASDAQ: SNDK), the world's largest supplier of flash
storage card products, today announced that its Board of Directors
confirmed that it received an unsolicited, non-binding proposal from
Samsung Electronics Co., Ltd (KSE: 005930) to acquire SanDisk for $26
per share in cash. After multiple meetings with Samsung since its
original indication of interest in an acquisition, SanDisk's Board of
Directors has deliberated on Samsung's proposal with advice from its
financial and legal advisors, and on September 15, 2008, sent the
enclosed letter to Samsung reflecting the board's unanimous conclusion
that the proposal is inadequate in multiple respects and not in the
best interests of SanDisk's stockholders. Samsung responded by
reiterating its offer to SanDisk on September 16, 2008.
As stated in its letter to Samsung, SanDisk's Board of Directors
concluded that, in its view, the proposal:
- significantly undervalues SanDisk given the long-term
prospects of its business;
- does not reflect the value of the substantial synergies that
Samsung can attain from an acquisition of SanDisk as shown by
Samsung's indication that it might be willing to pay a
significant premium to the SanDisk $28.75 per share closing
price on May 22, 2008 - the date Samsung first approached
SanDisk with respect to an acquisition - and represents a 55%
discount to SanDisk's 52-week high;
- is an opportunistic attempt to take advantage of SanDisk's
current stock price, which is significantly depressed given
industry cyclicality, the uncertainty resulting from the
unresolved patent cross license agreement renewal with
Samsung, and general equity market conditions;
- will be subject to regulatory review, an outcome that is
uncertain;
- raises the possibility that the offer is a calculated
negotiating ploy or an attempt to gain leverage in the ongoing
licensing negotiations between the companies, particularly in
light of the fact that the parties have met over 10 times on
this issue since June 2007; and
- despite repeated requests by SanDisk for basic stockholder
protections, does not provide adequate certainty or protection
to SanDisk's stockholders if an agreed upon transaction does
not close.
Eli Harari, Chairman of the Board of SanDisk and Chief Executive
Officer commented, "We believe Samsung's proposal does not provide
appropriate value to our stockholders and is opportunistically timed
at the trough of an industry-wide downturn. In our view, this proposal
fails to recognize the value of our patent portfolio, in particular to
Samsung, our significant investments in our strategic partnerships,
and our technology leadership in 3 and 4 bits per cell flash memory,
advanced controllers and three dimensional (3D) semiconductor memory.
We believe we have the strategy, execution record, innovation and
financial resources to return to profitable growth and be the flash
memory leader in new growth markets in mobile devices, solid state
disk, and portable consumer electronics."
Irwin Federman, lead independent director of SanDisk commented,
"We have been and remain willing to enter into good-faith discussions
with Samsung. However, due to Samsung's unwillingness to meet fair and
reasonable process conditions coupled with their desire to acquire
SanDisk at a significant discount to our view of its intrinsic value,
the Board believes that this proposal is not in the best interests of
stockholders. Going forward, we remain committed to diligently
executing against our existing business strategy and maximizing value
for our stockholders."
This communication does not constitute an offer to sell or the
solicitation of an offer to buy any securities or a solicitation of
any vote or approval.
Goldman Sachs and Morgan Stanley are acting as financial advisors
to SanDisk's board of directors and Skadden, Arps, Slate, Meagher &
Flom LLP is acting as a legal advisor to the board of directors.
The text of the letter sent by Dr. Eli Harari to Dr. Yoon Woo Lee,
Samsung's Vice Chairman and Chief Executive Officer, on September 15,
2008 is included below:
September 15, 2008
Yoon-Woo Lee, PhD
Vice Chairman and Chief Executive Officer
Samsung Electronics Co., Ltd
Samsung Main Building
250, 2-ga, Taepyeongno
Jung-gu, Seoul 100-742
Republic of Korea
Dear Dr. Lee:
This letter confirms many of the points we raised when we met with
you last week. We received your unsolicited, non-binding proposal
dated August 9, 2008 to acquire SanDisk Corporation for $26 per share
in cash. After a detailed review, with advice from our outside
financial and legal advisors, our board of directors has unanimously
concluded that your proposal significantly undervalues SanDisk given
the longer-term prospects of our business and does not reflect the
substantial synergies Samsung can obtain from the proposed
acquisition. In addition, your proposal fails to provide adequate deal
certainty, thereby exposing SanDisk and its stockholders to
unacceptable risk. Finally, your approach raises the question of
whether this action is simply an effort to gain leverage in the
ongoing negotiations to renew our patent cross license agreement and
evidences an unwillingness to engage in a process designed to
legitimately protect SanDisk's stockholders' interests.
We acknowledge the interest that you have expressed in SanDisk
over the past few months and, as expressed in the discussions we have
had since May 2008, the SanDisk board of directors remains open-minded
about a transaction that appropriately addresses the issues of value,
deal certainty and process. However, for these and other reasons we
believe your proposal is not consistent with the SanDisk board of
directors' objective of maximizing stockholder value and is not in the
best interests of SanDisk's stockholders.
VALUE
While you emphasized that your offer is a premium of 56% over the
stock price on the date of your non-binding proposal, in our meeting
on May 22, 2008 you implied that Samsung was prepared to pay a
significant cash premium over the then $28.75 price of SanDisk's
shares. Today, SanDisk's share price is close to its lowest price in
five years, and your offer represents a 55% discount to the 52-week
high. SanDisk's stock price is significantly depressed at this time
given industry cyclicality, the uncertainty resulting from our
unresolved patent cross license agreement renewal with you and general
equity market conditions, and therefore does not reflect the intrinsic
value of SanDisk's business.
The flash memory business is a cyclical growth market, which is
characterized by periods of strong growth and profitability such as we
saw between 2002 and 2007, punctuated by periods of oversupply and
declining flash prices like those we are experiencing today. Our board
of directors is focused on creating long-term value for our
stockholders and believes that SanDisk has the right strategy and the
requisite financial resources to manage through a prolonged downturn
and emerge as a stronger competitor. We are taking appropriate actions
to further fortify our financial position and are confident that in
the longer term we will benefit when exciting new flash applications,
such as storage in multimedia handsets, flash solid state drives, and
new consumer portable applications fuel the next period of industry
profitability and growth.
You have described on numerous occasions the significant synergies
that Samsung will achieve from acquiring SanDisk, one of the reasons
why we believe you were willing to pay a significant premium over the
$28.75 share price on May 22, 2008. Nothing has materially changed
since that date in terms of the synergies Samsung can realize from
acquiring SanDisk. These include avoiding billions of dollars of
royalties over the coming decade; gaining access to our x3 (three bits
per cell) and x4 (four bits per cell) knowhow; owning our advanced
controller technology; owning all of the leading card formats; gaining
control of our revolutionary 3D (three dimensional rewritable
semiconductor memory) technology - the best candidate to replace NAND
flash in the coming decade; controlling our strong brand, broad retail
distribution and leading market share in flash cards worldwide; and
other cost and revenue synergies.
We also note that the run rate of Samsung's royalties to SanDisk
continues to grow. Our view remains that without the right to use
SanDisk's patents, Samsung's stand-alone NAND business' prospects
would be significantly compromised. Conversely, ownership of our
fundamental patent portfolio would greatly strengthen your patent
position in emerging markets for flash storage like SSDs and managed
NAND chipsets. We hope that your current offer is not an attempt to
capitalize on the uncertainty reflected in our share price while this
IP issue remains unresolved or a negotiating tactic in the licensing
negotiations. SanDisk's stockholders deserve to be fairly compensated
for the value SanDisk offers Samsung, and your current offer fails to
recognize and monetize this value.
DEAL CERTAINTY
From the outset, we have expressed to you our concerns about the
risks to SanDisk of moving forward with a transaction with Samsung if
an announced transaction does not close. We note that any transaction
between SanDisk and Samsung will be subject to regulatory review,
including in the United States and the European Union. In addition,
any announcement of a transaction with you could also have a negative
impact on our business due to various factors. The simple, but
important, point is that without both maximum certainty of closing as
well as a viable path for SanDisk to continue as an independent entity
should the transaction not close despite your best efforts, your
proposal creates unacceptable risks for our stockholders and is not in
their best interests.
Because of this, we have proposed negotiating a replacement cross
license and supply agreement, both of which would become effective in
August 2009 if an announced transaction does not close. We have also
requested that you commit to certain terms to ensure that a
transaction has maximum certainty of closing. Despite our repeated
requests Samsung has failed to address these legitimate concerns.
PROCESS
We have been clear that together with price, these critical issues
of deal certainty and risk mitigation must be addressed before we
provide you due diligence access to the highly confidential and
competitively sensitive information that you have requested. We note
that there are sizeable synergies in this transaction for Samsung,
most of which you control and can determine without access to
confidential information. In addition, given that Samsung operates in
the same industry and that SanDisk is a public company, we are
confident that Samsung possesses the necessary information to address
the issues we have highlighted above prior to gaining access to
confidential information. However, despite our many attempts,
including those by our lead outside director, Mr. Irwin Federman, to
communicate the importance of these process issues and offering a
reasonable roadmap by which we both can address them, you have
rejected our guidance and instead insisted on access to highly
confidential information about SanDisk before these issues are
resolved.
CONCLUSION
The members of the SanDisk board of directors have taken, and will
continue to take, their responsibilities to SanDisk's stockholders
extremely seriously. We remain committed to the goal of maximizing
stockholder value. As Mr. Federman has said to you on multiple
occasions, including in our recent meeting in Seoul, on September 11,
2008, the SanDisk board of directors is open minded about a
transaction with Samsung if it represents a price that recognizes the
long-term intrinsic value of SanDisk and the significant synergies
that accrue to Samsung, provides deal certainty to SanDisk and can be
conducted in a process that adequately protects the interests of
SanDisk's stockholders. Samsung's current offer and approach falls
well short on all counts. As such, we respectfully reject your
proposal.
Very truly yours,
Eli Harari, PhD
Chairman of the Board and Chief Executive Officer
Forward-Looking Statements
This news release contains certain forward-looking statements,
including statements about our business prospects and outlook that are
based on our current expectations and involve numerous risks and
uncertainties that may cause these forward-looking statements to be
inaccurate and may significantly and adversely affect our business,
financial condition and results of operations. Risks that may cause
these forward-looking statements to be inaccurate include among
others:
- there can be no assurance that any corporate or other
transaction with Samsung or any other party will be negotiated
or consummated;
- we can provide no assurance as to whether any required
regulatory approvals can be obtained;
- enforcing our patent rights may involve litigation and other
uncertainties whose resolution can not be predicted;
- our license agreement with Samsung expires in 2009 and we can
not provide any assurance as to the effect of the end of our
existing license term on our financial results;
- slower than expected, or no, growth in market demand for our
products including our solid state drives, or a slower
adoption rate for our products in current and new markets that
we are targeting including the mobile phone market,
- future average selling price erosion that may be more severe
than our expectations due to decreased demand or excess
industry supply of flash memory from ourselves as well as from
existing suppliers or from new competitors,
- continued excess industry-wide supply to meet demand,
- adverse global economic and geo-political conditions,
including continued declines in the global economy,
particularly in the U.S. and Europe, or continued adverse
currency exchange rates particularly related to the Japanese
yen,
- any interruption of or delay in supply from any of the
semiconductor manufacturing or subcontracting facilities,
including test and assembly facilities that supply products to
us,
- slower than expected expansion of our global sales channels,
- fluctuations in operating results, unexpected yield variances
and delays related to our conversion to 43-nanometer NAND
flash technology or the ramp-up of the 300 millimeter flash
fabrication facility,
- unexpected yield variances in, or delays related to the
ramp-up of, 3-bits per cell manufacturing,
- lower than expected growth in the average megabyte capacity
per card,
- fluctuations in license and royalty revenues,
- higher than anticipated operating expenses,
- lower margins due to increased use of non-captive supply,
- failure to develop commercially viable rewritable 3D memory
technology in a timely and cost-effective manner,
- business interruption due to earthquakes, hurricanes or other
natural disasters, particularly in areas in the Pacific Rim
and Japan where we manufacture and assemble products,
- adverse results in litigation or regulatory actions affecting
us, and other risks detailed from time-to-time under the
caption "Risk Factors" and elsewhere in our Securities and
Exchange Commission filings and reports, including, but not
limited to, our Annual Report on Form 10-K for the fiscal year
ended December 30, 2007 and our Forms 10-Q. Future results may
differ materially from those previously reported. We undertake
no obligation to update these forward looking statements,
which speak only as of the date hereof.
About SanDisk
SanDisk Corporation, the inventor and world's largest supplier of
flash storage cards, is a global leader in flash memory - from
research, manufacturing and product design to consumer branding and
retail distribution. SanDisk's product portfolio includes flash memory
cards for mobile phones, digital cameras and camcorders, digital
audio/video players, USB flash drives for consumers and the
enterprise, embedded memory for mobile devices, and solid state drives
for computers. SanDisk (www.sandisk.com/corporate) is a Silicon
Valley-based S&P 500 company, with more than half its sales outside
the United States.
SanDisk, and the SanDisk logo are trademarks of SanDisk
Corporation, registered in the United States and other countries.
CONTACT:
For SanDisk:
Lori Barker Padon, 408-801-1384
or
Jay Iyer, 408-801-2067
or
For Brunswick Group:
New York
Steve Lipin, 212-333-3810
or
San Francisco
Michael Buckley, 415-293-8461
or
Hong Kong
Tim Payne, 852-3512-5000
SOURCE: SanDisk Corporation
