According to a report by Reuters citing sources, two well-known global storage chip manufacturers - Kioxia and Western Digital - are accelerating their merger negotiations and finalizing the transaction structure. The reason for this outcome is the sluggish and weak storage market conditions, which have increased the pressure for the merger of these two major storage chip companies.
The report states that the global market demand has plummeted, coupled with an oversupply situation, putting heavy pressure on Kioxia and Western Digital. If the flash memory businesses of these two companies can be further merged, it may enhance their competitiveness when facing competitors such as Samsung Electronics from South Korea. According to the current content of the negotiations, the merged company will have 43% of the shares held by Kioxia, 37% by Western Digital, and the rest held by the existing shareholders of the two companies.
The source emphasized that both parties are still in the negotiation stage and no decisions have been made yet. Therefore, the details may eventually change. Additionally, the planned merger case might also be subject to anti-monopoly reviews from several countries, including the United States.
The report states that Kioxia was formerly Toshiba Memory. In 2018, Toshiba sold more than half of its stake in Kioxia to a consortium led by Bain Capital for 18 billion US dollars. Currently, Toshiba still holds 40.6% of Kioxia’s shares. Recently, due to the deterioration of the flash memory market conditions, Kioxia has temporarily shelved its listing plan.
Currently, Kioxia and Western Digital jointly operate a flash memory wafer factory in Oita City, central Japan. Under this relationship, Kioxia and Western Digital conducted merger negotiations in 2021. However, due to differences in the estimated market value of the companies and other issues, the relevant negotiations were stalled. In January 2023, it was reported in the market that the two companies resumed their merger negotiations.
Once the negotiations are successfully completed, the merged company of Kioxia and Western Digital will control one-third of the global flash memory market. This will enable them to compete with the world’s largest storage chip manufacturer, Samsung Electronics of South Korea. Compared with major competitors such as Samsung and SK Hynix, Kioxia and Western Digital are currently more vulnerable to the fluctuations in the flash memory market due to their lack of significant control over prices. As a result, their operations have been impacted.
The report further emphasizes that Elliott Management, by holding convertible corporate debt preferred shares of Western Digital, has been pushing the company to separate its flash memory business from the hard drive department since its first investment in 2022. Sources disclosed that such a separation will take place before the merger of the flash memory business with Kioxia, and the merged company may seek an initial public offering after the transaction is completed.