There were some who were looking for a merger between hard drive kingpin Western Digital (NASDAQ:WDC) and Kioxia. However, Western Digital investors who were hoping the deal would go through smoothly have had their collective dreams dashed and responded accordingly. Investors pulled out rapidly, taking over 11% of Western Digital’s market cap with them in Thursday morning’s trading.
The sticking point in the merger talks was SK Hynix, who is an indirect shareholder in Kioxia. SK Hynix wouldn’t provide approval for the merger, which left Western Digital with few options but to leave. SK Hynix officials noted that they couldn’t agree to the deal “…in light of the overall impact on the value of the company’s investment in Kioxia.”
Further, Western Digital also couldn’t come to terms with Bain Capital, which serves as Kioxia’s largest shareholder. So, between a lack of approval from SK Hynix and troubles with Bain Capital, the merger talks were basically taken off the table altogether.
The news also likely comes as a blow to several Japanese banks, who were planning to put 1.9 trillion yen—around $12.63 billion—behind the deal. Had the deal gone through, the result would have left the combined entity as the world’s largest producer of NAND flash memory and would have left it a major player in a market where such memory is constantly in demand.
The ownership structure planned might also have been a problem for SK Hynix and Bain Capital, as Western Digital shareholders would have owned over 50%, while the rest would have been for current Kioxia shareholders and Toshiba, reports note.
Is Western Digital a Good Stock to Buy?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on WDC stock based on eight Buys, seven Holds, and one Sell assigned in the past three months, as indicated by the graphic below. Furthermore, the average WDC price target of $46.87 per share implies 24.69% upside potential.
