Elliott Management, which disclosed a 6 percent stake worth nearly $1 billion in Western Digital, has pushed the company to conduct a strategic review and split off its flash-memory business, Reuters news report said.
New York-based Elliott, one of the world’s most prominent activist investors, argued in a letter to the board that Western Digital’s acquisition of SanDisk is not working well and the company would be better off separating the flash and hard drives business.
Six years ago Western Digital paid $19 billion to buy SanDisk, boosting its ability to make flash memory storage chips used in smartphones and tablets. Operating two very different businesses as part of the same company has held it back, operationally, financially and strategically, Elliott wrote.
Western Digital makes hard drives, USB drives and memory cards. If it reverts to concentrate on its hard drives businesses, its stock price could surge to at least $100 a share by the end of next year, Elliott forecast. A full separation of the Flash business can allow both HDD and Flash to be more successful and unlock significant value, Elliott said.
San Jose, California-based Western Digital said it would carefully consider Elliott’s ideas and agrees that it is an excellent, yet undervalued, company. The company said it has explored options to unlock and deliver long-term value and we will continue dialogue with shareholders.
The HDD business can be valued at roughly $17 billion Elliott said, adding the implications are extraordinary for investors.
Elliott offered over $1 billion of incremental equity capital into the Flash business at an enterprise value of $17 billion to $20 billion which could be used in a spinoff transaction or as equity financing in a sale or merger.