Western Digital has filed regulatory paperwork to issue more shares as it closes in on a potential $20 billion (£14bn) merger with Japanese chipmaker Kioxia Holdings that could restructure the global memory chip market, creating a rival to Samsung Electronics.
The company filed the documents on Friday but didn’t indicate the size of the offering.
Industry watchers have speculated that Western Digital’s all-stock offer for Kioxia could be a difficult sell to Kioxia’s shareholders, given that it includes no cash and is smaller than other recent deals in the memory chip industry.
The deal may also face an uphill battle gaining regulatory approval.
South Korea’s SK Hynix last year agreed to buy Intel’s NAND memory business for $9bn, a deal that has yet to be signed off by regulators.
Kioxia – which was spun off from Toshiba to a consortium of private buyers in 2018 – has about three times the sales of Intel’s memory unit, but Western Digital’s offer is less than three times the value of the Intel deal, which would work out at $25bn to $28bn.
Such a price tag would be lower than Western Digital’s entire market valuation of about $20bn, industry analysts noted.
UBS analyst Timothy Arcuri said in a research note that Kioxia’s huge price relative to Western Digital’s overall value makes it “hard to see WDC wanting to issue that much stock at this valuation”.
Kioxia and Western Digital declined to comment the reported negotiations.
Increased demand for NAND memory, driven by the rollout of 5G as well as the increase in remote working during the pandemic, has spurred moves toward consolidation in the NAND industry, including Intel’s deal with SK Hynix.
NAND memory is used in smartphones, servers and other hardware.
Samsung dominates the market with about a one-third share, according to TrendForce, but Kioxia controls about 19 percent and Western Digital 15 percent.
SK Hynix, Micron and Intel also have substantial market share.
The deal, which could reportedly be finalised as early as mid-September, is likely to draw antitrust scrutiny in markets including China and the US.
In 2018 Qualcomm ended a $44bn effort to buy NXP Semiconductors after Chinese regulators blocked the deal, and Nvidia’s current effort to buy British chip designer ARM Holdings hit a potentially major roadblock with UK competition authorities last week.
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