Western Digital, a U.S. chipmaker, has its eye on competing with Samsung with its latest plan to separate its semiconductor memory unit and merge it with Kioxia Holdings, a Japanese company that ranks third in the global flash memory market.
The move aims to make Samsung a rival, with Western Digital and Kioxia are supposedly close to finalising the deal.
According to sources, Western Digital is working out the loan terms and other conditions with financial institutions.
The company wants to close this month, but the deal will likely need to go through antitrust authorities because the merger would put Kioxia, formerly Toshiba Memory, and Western Digital’s memory business under a single holding company.
If the merger happens, Kioxia would have a company share of 63%, and Western Digital would be around 37%, based on enterprise value.
With a capital adjustment, the definitive shares would be 50.1% for Western Digital and 49.9% for Kioxia.
The merger would make the company’s size align with that of South Korea’s Samsung Electronics, the market leader.
Such a deal would need to be cleared by antitrust authorities. Whether it could gain approval in China is still being determined.
The merger would put Kioxia and Western Digital’s memory business under a single holding company, and the new business would be registered in the U.S., with a head office in Japan, so it could potentially list on Nasdaq and the Tokyo Stock Exchange.
Japan’s top three banks entertaining the deal could lend anywhere from $15.9 billion to $20 billion in financing.
For the merger to succeed, capital is a significant part of the equation because building memory chip plants is a costly business.
With memory chip prices sinking quickly due to slow-moving inventory of smartphones, NAND flash memory value has decreased by 10% to 15% in the second quarter of this year contrasted to the first three months, according to TrendForce.
Additionally, Kioxia and Western Digital have logged net losses for three quarters in a row, however, demand is forecasted to increase over the longer term as technologies such as artificial intelligence and 5G wireless networks continue to grow.
The global semiconductor production and development environment can open up the supply chain to the risk of being disconnected in a disaster, which is why countries like the U.S. and China, now Japan, are working to ensure local domestic chip production occurs for their financial safety.
