Western Digital Corp. (WDC) shares surged higher Tuesday as activist investors renewed their push for changes at the chipmaker and called for the sale of its flash memory business.
In a letter to the Western Digital published Tuesday, activists at Elliott Management, which claims a 6% stake in the group valued at around $1 billion, pledged another $1 billion in financing to help fund either a spin-off, sale or merger with a strategic partner of the flash memory unit, which its says could be valued at between $17 billion and $20 billion.
San Jose, California-based Western Digital makes flash memory chips in Japan as part of a business arrangement with Kioxia, which was sold by Toshiba Corp. to a private equity consortium lead by Bain Capital in 2018, is one of the world's biggest NAND chipmakers in the world and a key supplier to Apple Inc.'s (AAPL) iPhones.
It also competes with South Korea's Samsung Electronics and SK Hynix, which bought Intel Corp.'s (INTC) flash memory business in 2020 for around $9 billion.
Western Digital, which attempted to buy Kioxia four years ago, purchased rival SanDisk Corp. in 2016, but faced activist pressure at the time for the $17 billion deal, which some said was pegged at too high a price.
"We believe a full separation of the Flash business can allow both HDD and Flash to be more successful and unlock significant value," the letter stated. "By executing on a separation, we believe Western Digital’s stock price could reach $100+ per share by the end of 2023, representing uniquely attractive upside of approximately 100%."
"We are calling on the Board to conduct a full strategic review of these ideas, confident in our view that a comprehensive, independent exploration of the value potential will point decisively toward a separation of HDD and Flash," Elliott said. "Though the majority of this Board and management team were not involved in the SanDisk decision, it is nevertheless this Board’s responsibility to address current market realities and set the Company on the right course."
Western Digital shares were marked 10.8% higher in early Tuesday trading to change hands at $59.77 each.
