Western Digital to split, after Kioxia merger blocked
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Storage and memory company Western Digital Corp. has announced a plan to split into two independent public companies, separating its hard disk drive and flash memory businesses.
Western Digital said that creating two independent, public companies would enable each to operate more efficiently with distinct capital structures as well as providing strategic opportunities for each. The separation is intended to be structured in a tax-free manner and to occur in 2H24.
Meanwhile Western Digital remains “open to strategic opportunities,” said CEO David Goeckeler.
The plan was revealed after it was reported that negotiations to merge Western Digital’s semiconductor business with Japan’s Kioxia had terminated after the merger failed to secure approval from SK Hynix, an indirect shareholder in Kioxia.
A merger of Kioxia and Western Digital could have produced a market leader but SK Hynix, currently ranked second in NAND memory to Samsung, declared its opposition to the merger on Thursday, according to Nikkei Electronics.
Kioxia, formerly known as Toshiba Memory, was spun out from Toshiba in 2021 by a consortium led by Bain Capital (see Exit Toshiba, pursued by private equity). However, with the memory market oversupplied and weak pricing since then both Western Digital and Kioxia, long-time partners in NAND flash, have seen financial results suffering.
Western Digital announced financial results for its 1QFY24. Revenue was US$2.75 billion down 26 percent from 1QFY23. The company made a net loss of $685 million compared with a net profit of US$27 million a year before.
Unlocking value
“Our HDD and Flash businesses are both well positioned to capitalize on the data storage industry’s significant market dynamics, and as separate companies, each will have the strategic focus and resources to pursue opportunities in their respective markets. Importantly, separating these franchises will unlock significant value for Western Digital shareholders, allowing them to participate in the upside of two industry leaders with distinct growth and investment profiles,” said CEO Goeckeler in a statement.
He added that Western Digital had looked at strategic transactions but that if had become clear to the board of directors in recent weeks that stand-alone separation is the right course of action.
Goeckeler added. “Moving forward, as we progress through fiscal year 2024, we see an improving market environment in both businesses, and we will remain open to strategic opportunities that unlock further value in both our HDD and Flash investments and assets.”
The deal remains subject to a number of details of financial planning, audits and approvals and other customary conditions.
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