Western Digital Could Split Its Two Major Businesses

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.







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