Western Digital, Japan’s Kioxia call off merger talks: Sources
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A merger of Western Digital and Kioxia would have created one of the world’s largest memory chip makers.
PHOTO: REUTERS
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TOKYO – Western Digital and Japan’s Kioxia Holdings have called off merger talks after failing to agree on terms, two sources said on Friday, in the latest stumble for an on-again, off-again deal to create one of the world’s largest memory chip makers.
The souring of the talks comes after South Korea’s SK Hynix – a major Kioxia investor and rival to both the US and Japanese companies – said it does not back the deal due to its impact on its investment asset value.
Still, both sides remain interested in consummating the deal, the two sources said.
Merger talks between the two memory chip heavyweights have been off and on since 2021.
Even with the talks halted, representatives of both Western Digital and Kioxia, formerly Toshiba Memory, were working on the sidelines to iron out difficulties, including winning over Hynix, one of the sources said.
The two sources did not wish to be identified because the information has not been made public.
The Nikkei business daily, which first reported the news, also said the companies were unable to agree on conditions with top Kioxia shareholder Bain Capital.
The combined company would control a third of the global Nand flash market, on a par with top player Samsung Electronics, and threaten the position of SK Hynix, the world’s No. 3 maker of Nand flash memory.
Kioxia declined to comment. Western Digital and Bain Capital did not respond to Reuters’ requests for comment.
Shares of Western Digital on Thursday plunged 9.3 per cent on the news.
Anti-trust issues
Asked about the cancellation, Japanese Economy, Trade and Industry Minister Yasutoshi Nishimura told reporters the government would follow up on the situation and continue to support Kioxia as the company is an important manufacturer of advanced chips.
The companies were pursuing a merger in the face of a global chip glut and weak demand for flash memory chips, which have increased pressure on chipmakers to consolidate.
Kioxia and Western Digital have held merger talks since 2021 but the negotiations have often stalled over a series of issues, including valuation discrepancies.
There are also concerns about potential antitrust issues, with Chinese regulators posing a big hurdle.
The merger would have given the companies “an opportunity to cut costs and be a more effective competitor in the market”, said Benchmark Company analyst Mark Miller.
“But it was a very complicated deal to get done. I’m not sure China would approve the deal either.”
The companies reported a combined loss of roughly US$1.4 billion (S$1.9 billion) in their latest quarterly reports.
In 2022, Western Digital launched a review of strategic alternatives, after activist Elliott Investment Management disclosed a stake of nearly US$1 billion in the company and pushed it to separate those businesses.
Japan’s top banks were set to commit 1.9 trillion yen (S$17.3 billion) financing to support the merger, Reuters had reported last week.
SK Hynix invested 395 billion yen in Kioxia in 2018 as a member of a Bain-led consortium that bought the Japanese firm from Toshiba for 2 trillion yen.
It holds convertible bonds that can be converted into an equity stake of up to 15 per cent in Kioxia and its approval was one of the pre-conditions for the merger. REUTERS
