Samsung Electronics drops bid for SanDisk

SEOUL (Reuters) - Samsung Electronics Co Ltd <005930.KS>, the world's largest maker of memory chips, said on Wednesday that it was withdrawing its $5.9 billion unsolicited bid for U.S.-based flash memory card maker SANDISK (SNDK.NQ)Corp .

Samsung cited SanDisk's rapidly declining prospects to explain its decision. Makers of memory chips are bracing for heavy quarterly losses as a lengthy industry downturn shows no signs of letting up.

"Your surprise announcements of a quarter billion dollar operating loss, a hurried renegotiation of your relationship with Toshiba and major job losses across your organization all point to a considerable increase in your risk profile and a material deterioration in value, both on a stand-alone basis as well as to Samsung," Samsung CEO Lee Yoon-woo wrote to SanDisk management in a letter disclosed by Samsung.

"As a result of these developments, we are no longer interested in acquiring SanDisk at $26/share."

Sandisk could not be reached immediately for comment.

SanDisk, which rejected Samsung's bid last month, on Monday posted a wider-than-expected quarterly loss and said it would sell some equipment to partner Toshiba <6502.T> in a bid to bolster its finances.

SanDisk had said Samsung's offer failed to recognize the "intrinsic" value of SanDisk's intellectual property. SanDisk CEO Eli Harari said on Monday that the two companies had not talked since September.

Analysts had been speculating that Samsung, fed up with SanDisk's unwillingness to negotiate at the current offer price, might withdraw its bid altogether.

"Samsung Elec probably has decided that as the memory chip market continues to weaken, the kind of price SanDisk was asking wasn't what they were willing to go along with," said Kim Young-june, an analyst at KTB Investment.

"The fact that the macroeconomic environment continues to worsen and that the South Korean government has warned against big overseas M&A deals also probably weighed."

Still, analysts said the decision to drop the bid did not mean Samsung had abandoned its pursuit of SanDisk altogether.

"It doesn't necessarily mean Samsung is giving up SanDisk for good," said Song Myung-sup, analyst at HI Investment & Securities.

"SanDisk's deal with Toshiba makes it a cheaper target for Samsung ... worth less than $26 a share."

Shares in Samsung, South Korea's biggest company, fell 0.77 percent to 515,000 won at 0048 GMT, outperforming the broader market's 1.45 percent fall.

(Additional reporting by Park Jung-youn; Editing by Keiron Henderson and Jonathan Hopfner)