Western Digital Corp. has shared that it is reviewing strategic options, including options for splitting off its two major businesses, HDD and flash memory. This announcement came about a month after prominent activist investor Elliott Management disclosed a stake of nearly $1 billion in the company. Elliot also pushed it to separate its flash and hard-drive business. It has so much power because it owns about 6% of Western Digital.
Elliot also stated that it had offered more than $1 billion of incremental equity capital into Western Digital's Flash business at an enterprise value of $17 billion to $20 billion.
For those unaware, Western Digital is one
of the largest makers of a type of chips, flash memory, in the world. They
provide storage in everything from supercomputers to smartphones. The chips
come from a partnership with Japan's Kioxia Holding Corp. They are taking over
the role of data storage from another main offering of the California-based
company, hard disk drives.
Western Digital Chief Executive Officer
David Goeckeler said, "The Board is aligned in the belief that maximizing
value creation warrants a comprehensive assessment of strategic alternatives
focused on structural options for the company's Flash and HDD businesses."
In May, Elliot had sent a letter to the Western
Digital board and called on it to conduct a full strategic review of the value
that could be created by separating the businesses. At that time, the New-York
based company stated that Western Digital had underperformed -- operationally,
financially, and strategically because of the challenges of running both
businesses as part of the same company.
Elliot said that a separation of the flash
business would allow both businesses to be more successful. It will also create
significant value. It could potentially send Western Digital's stock above $100
a share by the end of next year.
Elliott Managing Partner Jesse Cohn stated,
"We're encouraged by the positive direction of our discussions so far, and
by Western Digital's openness to considering a full separation of its Flash
business."
Senior Portfolio Manager Jason Genrich
said. "We are pleased that Western Digital's Board is conducting this
review, and Elliott is prepared to provide strategic resources and additional
capital to help the company realize the full value of both of its businesses."
An agreement took place between Elliot and
Western Digital. The hedge fund had agreed to certain standstill restrictions
until Western Digital's annual stockholder meeting in 2022.
If the review doesn't lead to a
transaction, Elliot has the right to appoint a director of their choosing. Then
both sides will appoint one director that they mutually agree upon. It was
mentioned in a filing with the US Securities and Exchange Commission.
The filing also mentioned that a strategic
transaction could include a sale of all or parts of the company or a sale,
spin-off, or carve-out of its two business segments. The strategic transaction
could also include a merger or acquisition of Kioxia. A final decision is
expected in the near future.
Sources:
https://www.techradar.com/news/western-digital-could-be-set-to-split
https://ca.finance.yahoo.com/news/western-digital-says-consider-splitting-014334704.html
https://www.reuters.com/technology/western-digital-reviewing-strategic-alternatives-after-elliotts-push-split-2022-06-08/