News that Western Digital is in advanced merger talks with Japan’s Kioxia Holdings sent Western Digital’s stock soaring on Wednesday and raised speculation about how such a deal might turn the global chip industry upside down.
Months-long talks between the companies “have heated up” in recent weeks, The Wall Street Journal reported, citing unnamed sources who are familiar with the discussions. According to those sources, a deal could be reached as early as mid-September. Western Digital would likely finance the deal with stock, the sources said, and the combined company would be run by the San Jose, California-based tech firm’s CEO, David Goeckeler.
Western Digital’s share price closed up nearly 8% on Wednesday and continued to move higher in pre-market trading early Thursday.
There’s no guarantee such a merger will ever take place. Western Digital, which boasts a market value of about $19 billion, might opt out, while Kioxia might decide to move forward with a planned initial public offering.
If it does happen, though, it would shake up the chip market in a big way. The deal itself would be valued at around $20 billion, Barron’s reported, and the combined company would account for up to 35% of the world’s flash storage production and revenue, according to estimates from Wells Fargo analyst Aaron Rakers.
The merger would also bring a large number of flash memory manufacturing assets under Western Digital’s roof, including intellectual property and equipment. As it stands now, the two companies conduct business together via a joint venture. Kioxia is a closely held firm that manufactures flash memory used in data centers, smartphones and other storage. With Kioxia under its roof, Western Digital would gain greater control over the global supply of flash memory.
The sheer scale and impact of such a deal would likely draw the attention of government officials. As Barron’s reported, it would probably require regulatory approval in Japan, China and the United States.
The discussions between Western Digital and Kioxia come during a period of widespread chip shortages and trade disputes between Washington and Beijing, Reuters reported. This, in turn, has triggered supply chain problems for manufacturers of everything from cars and laptops to home appliances and smartphones.
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