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SanDisk flashes $1.6bn for M-Systems

A NAND in the hand

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SanDisk has started flashing even more shine following its pledge to buy Israeli rival M-Systems for close to $1.6bn.

Analysts and many customers already adored SanDisk. The company has built up a leading position in the market for flash memory products. SanDisk now looks to strengthen that position with M-Systems on its side.

"I think the deal actually makes pretty good strategic sense," said Sangeeth Peruri, an analyst with J&W Seligman, in an interview with The Register. "In NAND (a type of flash memory), intellectual property is a big deal. There aren't that many good buckets of IP.

"Now, you can envision SanDisk having all the M-Systems patents for themselves. That makes sense to me."

The deal also seemed to make sense to other financial analysts.

W.R. Hambrecht analyst Daniel Amir characterized the acquisition as a "homerun" and stuck with his "buy" rating on SanDisk. UBS's Alex Gauna called the deal a "natural fit" and kept his "buy" on SanDisk as well. Other analysts tossed out more praise, calling the companies "perfect complements" and then adding that SanDisk is the clear "flash king."

The optimism easily outweighed any concerns about M-Systems' financial health. The company is one of many to restate years of results due to improper accounting of stock options.

All told, SanDisk paid just a 13 per cent premium over Friday's M-Systems close, although it preferred to stress the "26 per cent premium over the average closing price of M-systems' shares for the last third trading days." The all-stock deal, expected to close in the fourth quarter should it meet the usual conditions, will see each ordinary share of M-Systems turn into .76 of a share of SanDisk common stock.

Peruri speculated that the relatively low purchase price might be because M-Systems will hand in an average quarter next Monday when it reports Q2 results.

M-Systems - aka M-Systems Flash Disk Pioneers - makes a wide variety of flash memory products, including some that overlap with SanDisk. Peruri expects the companies to axe some of the low-margin products that crossover, leaving an overall healthier business.

With this purchase, the flash market continues to consolidate at speed. Micron earlier this year gobbled up SanDisk rival Lexar for $850m. In addition, Intel and Micron have an agreement to produce NAND flash memory chips together, hoping to see the products make their way into cell phones, laptops and other consumer devices.

Analysts were quick to flag the likes of Silicon Motion and Saifun as two possible takeover targets for Samsung, Intel, Micron or Hynix now that SanDisk poses an even larger threat. ®

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