Kioxia, Western Digital ‘Accelerate’ Merger Talks

Kioxia Holdings – formerly Toshiba’s memory division – and San Jose, California-based Western Digital are reportedly accelerating merger plans as declining flash memory prices put increased pressure on the firms to consolidate and improve competitiveness.

The companies are trying to finalise a deal structure for a combination of WDC’s flash memory operations, which rank No. 4 in the market, with No. 2 player Kioxia, which would theoretically create a player of similar size to leader Samsung Electronics, Reuters reported.

Kioxia and WDC have both been significantly affected by oversupply and dropping demand in the cyclical memory market.

Kioxia controls 20.6 percent of the Nand flash market, with WDC at 12.6 percent, compared to Samsung’s 31.4 percent, but analysts have noted that customers of WDC and Kioxia would be likely to switch away from a combined company to reduce their dependence on a single supplier and support competitors.

Consolidation

The deal would involve WDC spinning off its Nand flash operations from its hard disk division, which it faces pressure to do from activist investor Elliott Management, which acquired an initial stake last year.

A plan currently being worked out would have the merged entity 43 percent owned by Kioxia, 37 percent by Western Digital and the rest by existing shareholders of the companies, Reuters reported, noting that plans could change.

The companies are considering pursuing a public listing for the merged company following the deal.

Kioxia, spun off to a consortium of investors led by Bain Capital in 2018 for £18bn, had also planned a public offering, but scrapped the plans as memory prices dropped.

Market pressure

Toshiba still owns 40.6 percent of Kioxia, and a merger deal could affect the value of a $15 billion (£12bn) buyout offer for Toshiba itself by private equity firm Japan Industrial Partners (JIP).

So far Toshiba’s board has stopped short of recommending the JIP deal to shareholders, saying the price is too low.

A merger would be likely to attract competition scrutiny from countries including the US and China.

Kioxia and Western Digital were in merger talks in 2021 before negotiations stalled over valuation discrepancies and other issues, before talks restarted in January.

In Japan the two companies have a joint venture to produce Nand flash memory.