Regulators would reject Samsung deal for SanDisk

Samsung's $5.85 billion offer for flash memory chip developer SanDisk will probably be rejected by government regulators fearful such a tie up would harm competition, analysts said Tuesday.

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With such an acquisition, Samsung would likely gain control of the majority of the global supply of NAND flash memory chips and could squelch potent rivals, said Jim Handy, memory chip analyst at researcher Objective Analysis.

Apple and other major buyers of NAND flash memory would likely find their price negotiating power "severely constrained" if Samsung and SanDisk combine, he added.

Cheng Ming-kai, chip analyst at CLSA Asia-Pacific Markets, said a Samsung/SanDisk alliance would likely be viewed as uncompetitive by the U.S. Justice Department, based on measures the regulator uses to determine market competitiveness.

iPod and iPhone lovers could feel the brunt of any increase in NAND flash memory prices caused by the acquisition because the chips are at the heart of those devices as well as other digital music players and digital cameras, storing songs and other data.

For example, the 16G byte iPod Nano, at US$199, costs $50 more than the 8G byte Nano ($149), according to Apple's Web site, and the only difference between the two devices is the amount of NAND flash memory inside. Similarly, the 16G byte version of Apple's iPhone 3G costs $299 while the 8G byte version is $199, and the main difference is the amount of NAND flash memory.

Last year, Samsung and SanDisk together supplied nearly 50% of the world's NAND flash memory chips, Handy said, measured in either dollars or gigabytes.

"Objective Analysis is very doubtful that the government would allow such an acquisition to proceed, even in today’s dire market," Handy said.

Samsung, already the world's largest producer of NAND flash memory chips, could also increase its production at the expense of SanDisk's current manufacturing partner, Toshiba.

Toshiba and SanDisk have co-invested in NAND flash production lines in Japan and share chip output for their products. It's unclear what would happen to Toshiba in a Samsung deal for SanDisk, but Handy speculates that the Japanese company may be pushed aside as Samsung produces all the chips needed for a combined Samsung/SanDisk on its own.

Toshiba representatives declined to immediately comment on Samsung's offer for SanDisk.

CLSA's Cheng said Toshiba will likely see how Samsung's offer for SanDisk unfolds before making any comments.

SanDisk has already rejected the offer as too low.

Samsung first approached SanDisk about a deal in May, and indicated it might be willing to pay a "significant premium to the SanDisk $28.75 per share closing price on May 22, 2008," SanDisk said in a statement.

The $26 per share offer Samsung made on Tuesday is lower than the May indication and 55 percent below SanDisk's 52-week stock market high. SanDisk shares ended regular trading Tuesday at US$15.04 on the NASDAQ, up 4.4 percent on talk of an offer from Samsung and a possible rival bid from Toshiba.

SanDisk shares soared after Samsung made its bid public, rising $7.89, or 52.5 percent, in after market trading to $22.93 per share.

The IDG News Service is a Network World affiliate.