Two sources said that as the flash memory market slumps, Kioxia Holdings Corp. and Western Digital Corp. (WDC.O) are speeding up merger talks and finalizing a deal structure.
Oversupply and falling demand have hurt Kioxia and Western Digital. However, combining their flash memory businesses might strengthen competition against Samsung Electronics (005930. K.S.).
One source indicated that under the current arrangement, Kioxia would own 43% of the combined business, Western Digital 37%, and the rest by existing shareholders.
Private chats prevented both sources from identifying themselves.
Sources stated no decision had been taken, and information may change. In addition, the transaction may face antitrust probes in the U.S. and China.
Kioxia declined to comment. Western Digital did not immediately comment.
Since buying convertible preferred shares in Western Digital last year, activist investor Elliott Management has pushed the U.S. corporation to split its flash-memory business from its hard-drive segment.
One source suggested a split would precede the flash memory combination with Kioxia, and the United business may seek a listing afterward.
Toshiba Corp (6502.T) sold Kioxia, formerly Toshiba Memory, to a Bain Capital-led group for $18 billion in 2018. However, due to the declining flash-memory industry, it has postponed an IPO. Toshiba holds 40.6% of Kioxia.
Elliott owns Toshiba and has a board member.
Toshiba is also revamping. Toshiba’s board has not recommended a $15 billion purchase offer from Japan Industrial Partners (JIP), citing worries that the price was too low.
Toshiba filed that Kioxia’s declining valuation lowered JIP’s bid price.
The sources said Toshiba’s ownership in Kioxia and how the combination with Western Digital’s flash memory unit would affect JIP’s bid for Toshiba were unclear.
In 2021, value disagreements stopped merger talks between Kioxia and Western Digital. However, January’s Bloomberg article revived merger talks.
NAND flash memory chips, which store data without electricity, are made by the two businesses in Japan.
Kioxia-Western Digital would share a third of the worldwide NAND flash market with Samsung, the largest vendor.
Analysts say Kioxia and Western Digital are more sensitive to NAND flash market volatility than Samsung and S.K. Hynix Inc (000660. K.S.), major players in the more concentrated DRAM chip industry.
