It’s common for companies in the midst of a hostile takeover to claim that their shares are undervalued (see Yahoo-Microsoft). SanDisk, which is being pursued by Samsung for $5.8 billion, is no different, and today its claims were examined in the Wall Street Journal. The paper focused on SanDisk’sX4 memory technology, which is central to the company’s argument that it’s worth more than what Samsung is offering. But cool technology aside, the unforgiving pressures of the NAND memory market, the 80 percent premium Samsung has offered, and the lack so far of a serious rival mean the price isn’t going to get much higher.
The WSJ story details the next generation of Flash memory and the convoluted word of licensing agreements. The next-generation X4 memory technology would ensure that the price for Flash memory keeps dropping as chipmakers double down on the amount of information stored every year to 18 months. To sum it up for people less concerned with the ins and outs of intellectual property, SanDisk acquired a company back in 2006 that may have a way to keep cramming more Gigabytes into Flash memory cards by stacking the memory vertically — like building a skyscraper rather than a sprawling office complex. That’s big, because the current means of enabling NAND Flash to store more at a reasonable cost faces some impending physics challenges.
That company, msystems, had a licensing agreement with Samsung, but in 2006 backed out of it, claiming that Samsung never followed through on its end of the deal. A few months later SanDisk, which already owns a lot of intellectual property related to Flash memory that costs Samsung millions annually (Reuters says $350 million) in licensing fees, bought msystems. Samsung cried foul and took the matter to arbitration. The arbitration board found SanDisk and msystems were in the right, so Samsung sued. Less than a week after it went public with its bid for SanDisk, Samsung withdrew the suit.
SanDisk claims Samsung withdrew the suit because it didn’t want to have to testify how much it thought the X4 technology was worth. Samsung said they pulled they suit because SanDisk had its winning arbitration affirmed by the courts and it realized it couldn’t win.
Shares of SanDisk haven’t risen above the $23 mark since the $26-per-share deal was announced, meaning the market isn’t buying any of the arguments that SanDisk is throwing out. I’m going to assume investors understand what SanDisk’s board seems to have trouble with: The value of a company is the sum of a lot of parts, and patents are only a few of those parts.
SanDisk stock chart courtesy of BigCharts.com.